Kerry CPA is the auditor for Sammy Corp. During the audit, Kerry discovers a material misstatement in Sammy’s financial statements. Sammy’s management tells Kerry that if the misstatement is corrected or if Kerry issues an opinion that indicates there is a material misstatement, Sammy Corp. will likely have to declare bankruptcy and thousands of employees will lose their jobs. Which of the following statements is true if Sammy does not correct the misstatement and Kerry issues an unqualified opinion on Sammy’s financial statements?
A. Kerry is liable only to third parties in privity of contract.
B. Kerry is liable only to known users of the financial statements.
C. Kerry is likely liable to any person who suffered a loss as a result of the material misstatement.
D. Kerry is likely liable to third parties only if the third parties were aware of the material misstatements and relied on the financial statements.
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