Part 5 Auditor Legal Defense and Types of Third Parties (16 points)

I. discuss the auditors defense for Lack of Duty if a third party sues the auditor.

II. Identify types of third parties on.

There are different types of third parties. Classify the independent situations shown below as either (a) Primary beneficiary (Identified User; Near Privity);

(b) Foreseen; or (c) Foreseeable (reasonably foreseeable).

1. A potential purchaser of a business who asks for audited

financial statements of that business and is known to the

auditor.

2. A potential purchaser of a business who asks for audited

financial statements of that business and is NOT known to the

auditor. However, the auditor knows that his or her client

has asked for an audit because of an intention to sell the

business.

3. The company borrowed money from Bank ABC. The auditor had been

led to believe that the client would use the financial

statements only to facilitate sale of the company. Bank ABC is

what type of third party?

4. A vendor who sold inventory to a company.

Answers: Type of third Party

Use letters!

1. ____

2. ____

3. ____

4. ____