Krim, president and CEO of United Co., engaged Smith, CPA, to audit United’s financial statements so that United could secure a loan from First Bank. Smith issued an unqualified opinion on May 20, but the loan was delayed. On August 5, on inquiry to Smith by First Bank, Smith, relying on Krim’s representation, made assurances that there was no material change in United’s financial status. Krim’s representation was untrue because of a material change after May 20. First relied on Smith’s assurances of no change. Shortly afterward, United became insolvent. If First sues Smith for negligent misrepresentation, Smith will be found 5. A.Liable, because Smith should have contacted the chief financial officer rather than the chief executive officer. B.Not liable, because Smith’s opinion only covers the period up to May 20. C.Not liable, because Krim misled Smith, and a CPA is not responsible for a client’s untrue representations. D.Liable, because Smith should have undertaken sufficient auditing procedures to verify the status of United.
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