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

question 46

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,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:

Purchase Returns

Goods returned by the buyer to the seller due to defects, excess supply, or other reasons.

Sales Discount

A reduction in the price of goods or services offered to customers, typically to prompt early payment or bulk purchases.

Contra Revenue Account

An account used to record reductions in gross revenue, such as discounts, returns, and allowances.