While Conducting an Audit, Larson Associates, CPAs, Failed to Detect

question 55

Multiple Choice

While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and 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. In a suit by a purchaser against Larson for common-law negligence, Larson's best defense would be that the:

• A)audit was conducted in accordance with generally accepted auditing standards.
• B)client was aware of the misstatements.
• C)purchaser was not in privity of contract with Larson.
• D)identity of the purchaser was not known to Larson at the time of the audit.

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Definitions:

Aging Population

A demographic trend characterized by an increase in the median age of a population, resulting from declining fertility rates and/or rising life expectancy.

Medical Services

Professional healthcare services provided by doctors, nurses, and health practitioners to diagnose, treat, and prevent illnesses and conditions.

Assisted Living Care

A residential option for seniors who require help with daily activities and personal care but wish to maintain a level of independence, offering a balance of support and autonomy.

Service-Product Continuum

A concept that describes the range between a pure service and a pure product, illustrating how most market offerings consist of a mix of both elements.