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

question 59

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 was negligent in conducting the audit.
• B)The purchaser must prove that Larson knew of the material misstatements.
• C)Larson will not be liable if it had reasonable grounds, based on work performed, to believe the financial statements were accurate.
• D)Larson will be liable unless the purchaser did not rely on the financial statements.

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Definitions:

Premises

Statements or propositions from which conclusions are logically derived in arguments.

Conclusion

Conclusion refers to the end or finish of an event, process, or text, often summarizing the main points or deducing a final decision.

Conjunctions

Words that connect clauses, sentences, or words in the same sentence to coordinate thoughts and ideas.

Connective

A term or element used in logic and language to link propositions, sentences, or words in a coherent way to construct complex statements.