If an Audit Firm Is Being Sued by a Third

question 19

Multiple Choice

If an audit firm is being sued by a third party for common-law fraud based upon a materially false financial report, which of the following is the best defence which the auditors could assert?

• A) Lack of a contractual relationship.
• B) Contributory negligence on the part of the client.
• C) Disclaimer contained in the engagement letter.
• D) Lack of causation.

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Definitions:

Cash Dividends

Distributions from a corporation to its owners, typically in the form of profit payouts.

Brokerage Fees

Charges levied by a broker for facilitating transactions between two parties, such as buying or selling stocks.

Available-For-Sale Security

A financial investment not classified as held-for-trading or held-to-maturity, which can be sold in the short term for cash.

Fair Value

An estimate of a security's worth on an open market, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller.