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

question 36

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 his audit.
• D)The reliance on the materially misstated financial statements caused the shareholders' losses.

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Definitions:

Actual Quantity

The real amount of inputs, such as raw materials or labor hours, consumed in the production process, as opposed to planned or standard quantities.

Standard Price

Standard Price refers to the predetermined cost of goods or services used for budgeting and cost management purposes, often serving as a benchmark for evaluating actual costs.

Actual Costs

The precise expenses incurred for materials, labor, and overhead in producing goods or providing services.

Standard Costs

Pre-determined or estimated costs used as a benchmark to compare with the actual costs incurred.