Starr Corp

question 7

Multiple Choice

Starr Corp. approved a plan of merger with Silo Corp. One of the determining factors in approving the merger was the strong financial statements of Silo which were audited by Cox & Co., CPAs. Starr had engaged Cox to audit Silo's financial statements. While performing the audit, Cox failed to discover certain instances of fraud which have subsequently caused Starr to suffer substantial losses. In order for Cox to be liable under common law, Starr, at a minimum, must prove that Cox:

• A) Acted recklessly or with lack of reasonable grounds for belief.
• B) Knew of the instances of fraud.
• C) Failed to exercise due care.
• D) Was grossly negligent.

---

Definitions:

Audience Effect

The impact that the presence of spectators has on an individual's performance, often resulting in enhancements or deteriorations.

Energy Motivation

The drive to engage in activities due to an intrinsic desire to expend energy and seek stimulation.

Observation Motivation

Observation motivation is the drive or inclination to learn or acquire new behaviors, skills, or information by observing others rather than through direct experience.

Foot-In-The-Door Effect

A mental phenomenon wherein consenting to a minor request enhances the chances of acquiescing to a more significant request subsequently.