While Conducting an Audit, Larson Associates, CPAs, Failed to Detect

question 53

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 for common-law negligence, 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:

Cross-Validation

Verifying the results obtained from a validation study by administering a test or test battery to a different sample (drawn from the same population)

Original Validation Study

A research endeavor that aims to determine the effectiveness and accuracy of a tool, test, or process for the first time.

Myers-Briggs Type Indicator

A psychometric questionnaire designed to measure psychological preferences in how people perceive the world and make decisions.

Personality Test

A psychometric assessment designed to evaluate an individual’s character traits, behaviors, and tendencies to determine suitability for roles or understand personal dynamics.