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.

---

Definitions:

Situational Causes

Factors relating to the environment or specific circumstances outside an individual that contribute to their behavior.

Different Perspective

Viewing situations, problems, or concepts from an alternative or contrasting viewpoint, often revealing new insights or understanding.

Three-Stage Model

A framework that outlines a process or development in three distinct phases.

Dispositional Attribution

A tendency to attribute someone's behavior to internal factors, such as personality or disposition.