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:

Federal Reserve Bank

One of the 12 regional banks that, together with the Board of Governors, make up the Federal Reserve System, which serves as the central banking system of the United States.

Treasury Notes

Short- to medium-term debt obligations issued by a national government with fixed interest rates and maturities ranging from one to ten years.

Federal Reserve System

The central banking system of the United States, responsible for monetary policy, regulation of member banks, and ensuring stability of the financial system.

District Banks

Banks that are part of a larger Federal Reserve System in the United States, responsible for overseeing the monetary policy and banking regulations in their specific district.