Which of the Following Is the Best Defense a CPA

question 11

Multiple Choice

Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?

• A)Contributory negligence on the part of the client.
• B)A disclaimer contained in the engagement letter.
• C)Lack of privity.
• D)Lack of scienter.

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Definitions:

Productivity

The efficiency with which input resources are converted into outputs, often measured as the ratio of output to input in a given time period.

Law of Diminishing Returns

The principle that as investment in a single factor of production increases, holding all others constant, the incremental gains in output will eventually decrease.

Law of Diminishing Marginal Utility

states that as a person consumes more of a good or service, the utility (satisfaction) gained from each additional unit decreases.

Principal-agent Problem

A dilemma occurring when one person or entity (the agent), is able to make decisions on behalf of, or that impact, another person or entity: the principal.