While Conducting an Audit, Larson & Larson Chartered Professional Accountants

question 3

Multiple Choice

While conducting an audit, Larson & Larson Chartered Professional Accountants failed to detect a material misstatement in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a 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?

• 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 they had reasonable grounds 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:

Terminal Illness

A disease or condition that is incurable and leads inevitably to death.

Health-care Professionals

Qualified individuals who provide preventive, curative, promotional, or rehabilitative health care services in a systematic way to people, families, or communities.

Overworked

The condition of working excessively long hours, leading to stress and fatigue.

Anger

A strong feeling of displeasure or hostility that arises as a reaction to a perceived wrong, frustration, or threat.