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:

Social networks

Structures made up of individuals or organizations that are connected by one or more types of interdependency, such as friendships, kinships, common interests, or economic exchanges.

Indirect ties

Connections in a social network that link individuals through intermediaries rather than through direct personal relationships.

Influence them

The action or process of affecting someone's character, development, or behavior without using direct force or command.

Shared identity

A sense of belonging to a group where members perceive themselves as having key aspects of their identity in common.