ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

Harlow & Finch, an audit firm, issues an unmodified opinion on the financial statements of Brenton Ltd. A bank, which the auditor knew nothing about, later relies on the statements to lend money to Brenton and suffers a loss. Under the general common law approach to auditor negligence, which statement is most accurate regarding the duty of care owed by the auditor to the bank?

A duty of care to an unknown third party such as the bank is unlikely. Auditors generally owe a duty to third parties only where they knew the statements would be given to an identifiable party for a specific purpose and that party would rely on them. Mere foreseeability of reliance is insufficient.

1. AThe auditor owes a duty to any third party that reads the financial statements
2. BThe auditor owes a duty only where it knew the third party would rely on the statements for a specific known purpose, so a duty to this bank is unlikelyCorrect
3. CThe auditor owes a duty to all lenders because banks are always foreseeable users
4. DThe auditor owes a duty to third parties only if the audit fee was paid by them