Response to the following problem:
Doyle and Jensen, CPAs, audited the accounts of Regal Jewelry, Inc., a corporation that imports and deals in fine jewelry. Upon completion of the audit, the auditors supplied Regal Jewelry with 20 copies of the audited financial statements. The firm knew in a general way that Regal Jewelry wanted that number of copies of the auditor's report to furnish to banks and other potential lenders. The balance sheet in question was misstated by approximately $800,000. Instead of having a $600,000 net worth, the corporation was insolvent. The management of Regal Jewelry had doctored the books to avoid bankruptcy. The assets had been overstated by $500,000 of fictitious and nonexisting accounts receivable and $300,000 of nonexisting jewelry listed as inventory when in fact Regal Jewelry had only empty boxes. The audit failed to detect these fraudulent entries. Thompson, relying on the audited financial statements, loaned Regal Jewelry $200,000. She seeks to recover her loss from Doyle and Jensen.
Required:
State whether each of the following is true or false and give your reasons:
a. If Thompson alleges and proves negligence on the part of Doyle and Jensen, she will be able to recover her loss.
b. If Thompson alleges and proves constructive fraud (that is, gross negligence on the part of Doyle and Jensen), she will be able to recover her loss.
c. Thompson does not have a contract with Doyle and Jensen.
d. Unless actual fraud on the part of Doyle and Jensen can be shown, Thompson can not recover.
e. Thompson is a third-party beneficiary of the contract Doyle and Jensen made with Regal Jewelry.