Kerry CPA Is the Auditor for Sammy Corp

question 33

Multiple Choice

Kerry CPA is the auditor for Sammy Corp.During the audit,Kerry discovers a material misstatement in Sammy's financial statements.Sammy's management tells Kerry that if the misstatement is corrected or if Kerry issues an opinion that indicates there is a material misstatement,Sammy Corp.will likely have to declare bankruptcy and thousands of employees will lose their jobs.Which of the following statements is true if the misstatement is not corrected and Kerry issues an unqualified opinion on Sammy's financial statements?

• A)Kerry is liable only to third parties in privity of contract.
• B)Kerry is liable only to known users of the financial statements.
• C)Kerry is likely liable to any person who suffered a loss as a result of the fraud.
• D)Kerry is likely liable to third parties even if the third parties were aware of the fraud and did not rely on the opinion.

---

Definitions:

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Net Income

The amount of earnings left over after all expenses and taxes have been deducted from total revenue.

Revenue

The total amount of money received by a company for goods sold or services provided during a certain time period.

Break-Even Point

The break-even point is the point at which total costs and total revenues are equal, meaning there is no net loss or gain.