Meglow Corporation a closely held manufacturer of dresses and blouses sought a l
ID: 2419459 • Letter: M
Question
Meglow Corporation a closely held manufacturer of dresses and blouses sought a loan form busch Factors. Busch had previously extended $50000 credit to Meglow but refused to lend any additional money without obtaining copies of Meglow's audited financial statements. Meglow contacted the public accounting firm of Seavers and Dean to perform the audit. in arranging for the audit Meglow clearly indicated that its purpose was to satisfy Busch Factors as to the corporation's sound financial condition and to obtain an additional loan of $100000. Seavers and Dean accepted the engagement performed the audit in a negligent manner and rendered an unqualified opinion. if an adequate audit had been performed the financial statements would have been found to be misleading. Meglow submitted the audited financial statements to bush factors and obtained an additional loan of 70000. busch refused to lend more than the amount. after several other factors refused, Meglow finally was able to persuade Maxwell department stores one of its customers to lend the additional 30000. maxwell relied upon the financial stmts. meglow is now in bankrupcty and Busch seeks to collect from Seavers and dean the 120000 in loaned meglow. a. will Busch recover? explain b. will Maxwell recover? explain.
Explanation / Answer
if Busch and Maxwell can establish the following , they would be able to recover the amount:
•That there was damage or loss.
•That there was a privity or beneficiary relationship.
•That financial statements were materially misleading.
•That the statements were relied on.
•That the statements were the direct cause of the loss.
•That the accountant was negligent in performance of duties.