While Conducting an Audit of a Public Entity,Wallace Failed to Identify

question 108

Multiple Choice

While conducting an audit of a public entity,Wallace failed to identify material misstatements in its client's financial statements.Investors then sued Wallace in connection with this audit.Which of the following would not need to be demonstrated in order for the shareholders to successfully bring suit against Wallace?

• A) Wallace was in privity with the shareholders.
• B) The shareholders relied upon the materially misstated financial statements.
• C) Wallace acted with gross negligence in the audit.
• D) The reliance on the materially misstated financial statements caused the shareholders' losses.

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Definitions:

Aversive Event

An unpleasant or harmful event or stimulus that an individual seeks to avoid or minimize.

Passive Avoidance

A learning process in which animals learn to avoid an aversive stimulus based on previous negative experiences.

Agoraphobia

An anxiety disorder characterized by an intense fear of being in situations where escape might be difficult or help wouldn't be available if things go wrong.

Vicious-Circle Behavior

A self-perpetuating process in which a behavior leads to consequences that increase the likelihood of the behavior recurring, often seen in negative or harmful patterns.