Question

The Credit Alliance v. Arthur Andersen & Co. case established three tests that must be satisfied for holding auditors liable for negligence to third parties. All of the following are tests described except :________.

a) Knowledge by the accountant that the financial statements are to be used for a particular purpose.
b) The intention of the third party to rely on those statements.
c) Some action by the accountant linking hi or her to the third party than provides evidence of the accountant's understanding of intented reliance.
d) The identity of the third party must be directly known to the auditor.

Answer 1

D.

Step-by-step explanation:

The Credit Alliance v. Arthur Andersen & Co. is a case that questions if an accountant should be held liable to the third party on whom it is reliable to his detriment absent privity of contract.

The Court of Appeals of New York, on July 2, 1985, affirmed that an auditor should not be held liable if they fulfill the following three requirements.

1. The auditor should have knowledge that the financial statements will be used for a particular purpose.
2. The intention of the third party to rely on those statements.
3. Some action should have been there by the acccountant that links him or her to the third party which will clarify the auditor to understand why third party is relying in the statement.

So, from the options stated in the question, one that is not included in this case is the fourth one. Thus the correct answer is option D.