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:

Unaddressed Envelope

An envelope lacking a specific destination address, often used for general mail distribution or marketing purposes.

Promissory Estoppel

A legal principle that prevents a party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise to their detriment.

Foreclose

The legal process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

Consideration

The value (such as money, goods, or services) that is exchanged between parties in a contract.