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:

Daytime Nap

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Learned Component

Refers to aspects of behavior or knowledge that are acquired through experience, as opposed to being innate.

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The social behavior, norms, knowledge, beliefs, arts, laws, and customs shared by a group of people.

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A lethal ingestion or exposure to a substance, typically a drug, leading to death.