Helmut & Co., a public accountingfirm, was the new auditor of Mountain Ltd., a private company in the farmequipment and supply business. In early February 2016, Helmut & Co. beganthe audit for the year ended December 31, 2015. The audit was to be run byFrost, a senior who had just joined Helmut from another firm. Frost was to beassisted by two juniors. Mountain, the president of Mountain Ltd., approachedFrost and said that the Bank of Trail was prepared to increase its loan toMountain upon receipt of the 2015 financial statements.Mountain also informed Frost that it was veryimportant that he receives an unqualified opinion to satisfy the bank.

The juniors were assigned the accountsreceivable and inventory sections, both of which were significant in relationto total assets, while Frost concentrated on the income statement and theremaining balance sheet accounts. The audit was finished quickly, and after acursory review of the file and statements by Helmut, senior partner of Helmut& Co., the signed auditor's report was appended to the financial statements,which were delivered to Mountain, which, in turn, sent them to the bank.

Thebank increased the loan significantly, principally on the basis of the verysuccessful year the company had enjoyeddespite the fact that the farm supply business was depressed. Several months later, Mountain Ltd. made an assignmentin bankruptcy. The trustee found that many accounts receivable were stilloutstanding from the balance sheet date and that inventory on hand includedsubstantial quantities of obsolete and damaged goods that had been included inthe year-end inventory at cost. In addition, the year-end inventory amountincluded inventory that had been sold prior to the year-end.The Bank of Trail is sued Helmut for negligence.

Required:Discuss Helmut and Co. s Is lack of privity a defence in this case?Was Helmut and Co. negligents? .