Watt & Hu, a firm of public accountants, audited the accounts of Simpson Skins Ltd, a company that manufactures and distributes potato products to cafes and fast-food outlets. On completion of the examination, the auditors supplied Simpson Skins with 20 copies of the audited balance sheet. The firm knew that Simpson Skins wanted that number of copies of the auditor's report to furnish to banks and other potential lenders. Indeed, Watt & Hu had helped Simpson Skins identify the list of potential lenders.

Undetected by the auditor, the management of Simpson Skins had falsified its books. The assets had been overstated by including $500 000 of fictitious accounts receivable and $300 000 of non-existent inventory (Simpson Skins had put empty boxes in the freezers to fool the auditors). Instead of having a $600 000 net worth, the company was insolvent. Martinson, relying on the balance sheet, lent Simpson Skins $200 000. She seeks to recover her loss from Watt & Hu.

REQUIRED

State whether each of the following is true or false, and give your reasons.

a. If Martinson proves negligence on the part of Watt & Hu, she will be able to recover her loss.

b. Martinson doesn't have a contract with Watt & Hu.

c. Unless actual fraud on the part of Watt & Hu can be shown, Martinson cannot recover.

d. Martinson is a third-party beneficiary of the contract made with Simpson Skins.