While Conducting an Audit,Larson Associates,CPAs,failed to Detect Material Misstatements Included

question 44

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.Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities under section 11 of the Securities Act of 1933?

• A)The purchaser must prove that Larson failed to conduct the audit in accordance with generally accepted auditing standards.
• B)The purchaser must prove that Larson knew of the material misstatements.
• C)Larson will not be liable if it had reasonable grounds to believe the financial statements were accurate.
• D)Larson will not be liable if the purchaser did not rely on the financial statements.

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Definitions:

Gratuitous Agent

An agent who works on behalf of another person (the principal) without receiving any compensation for the services.

Duty Of Loyalty

A legal obligation of individuals in fiduciary roles to act in the best interest of the party they owe the duty to, typically seen in corporate governance and employment.

Paid Agent

An individual or entity that is compensated to act on behalf of another person or company, typically in a representative or intermediary role.

Independent Contractors

Individuals who provide goods or services under terms specified in a contract or within a verbal agreement, not considered employees.