As a Consequence of His Failure to Adhere to Generally

question 53

Multiple Choice

As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company's controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft?

• A) He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees.
• B) He would have no liability because privity of contract is lacking.
• C) He would be liable for losses attributable to his negligence.
• D) He would be liable only if it could be proven that he was grossly negligent.

---

Definitions:

Loss-leader Pricing

A strategy where a product is sold at a loss to attract customers in hopes they will make additional purchases.

Below-market Pricing

Below-market pricing is a strategy where goods or services are sold at a price lower than the prevailing market rate to attract customers and increase market share.

Magnet Pricing

A strategy used by retailers to attract customers by advertising very low prices on a few items with the expectation that once customers are in the store, they will purchase additional items.

Price War

Successive price cutting by competitors to increase or maintain their unit sales or market share.