A CPA Firm Has Audited the Financial Statements Included in a Form

question 34

Essay

A CPA firm has audited the financial statements included in a Form S-1 filed with the SEC under the Securities Act of 1933. Shortly thereafter, the company went bankrupt and a class action lawsuit was filed by the initial investors against the CPA firm.
a. What should the plaintiff investors attempt to prove?
b. Must the plaintiffs prove that they relied on the financial statements included in the Form S-1?
c. What must the CPA firm prove in order to be successful with respect to the firm's defense? a. The plaintiff investors should attempt to prove:
• That they sustained losses, and
• That the financial statements were misleading.
b. No. The investors need not prove reliance.
c. The audit firm must prove:

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Definitions:

Interest Inelastic

A situation where the demand for or the supply of a good or service does not significantly change in response to changes in interest rates.

Reverend Thomas Malthus

An 18th-century economist known for his theory on population growth, suggesting that population increases geometrically, whereas food supply increases arithmetically, leading to inevitable shortages.

Population Growth

The increase in the number of individuals in a population, commonly expressed as an annual percentage.

Dismal Science

A nickname for economics, stemming from its predictions and analyses that often focus on the limitations and constraints of economic activities.