While Conducting an Audit,Larson & Larson Chartered Accountants Failed to Detect

question 33

Multiple Choice

While conducting an audit,Larson & Larson Chartered Accountants failed to detect a material misstatement in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a prospectus for a public offering of securities made by the client.Larson knew that its opinion and the financial statements would be used for this purpose.Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities?

• A)The purchaser must prove that Larson was negligent in conducting the audit.
• B)The purchaser must prove that Larson knew of the material misstatements.
• C)Larson will not be liable if they had reasonable grounds to believe the financial statements were accurate.
• D)Larson will be liable unless the purchaser did not rely on the financial statements.

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Definitions:

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy.

Brazilian Real

The official currency of Brazil, symbolized as R$ and denoted by the ISO code BRL.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Exchange Rate System

The method by which the value of one currency is fixed or determined in relation to other currencies, such as through floating or fixed exchange rate regimes.