Management Failed to Put in a System of Adequate Internal

question 21

Multiple Choice

Management failed to put in a system of adequate internal controls. The public accounting firm uncovered the weakness, but did not report it to the Board members of the company. What
Kind of liability, if any, would the auditors be exposed to?

• A) breach of contract
• B) contributory negligence
• C) a and b
• D) no liability

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Definitions:

Noncontrolling Interest

A minority stake in a company, referring to shareholders who do not have the majority of voting rights or significant influence over the company.

Participation Rights

Rights granting holders the ability to participate in certain financial benefits or distributions, often found in preferred shares or venture capital deals.

Decision-Making Authority

The power or right vested in individuals or groups to make important decisions that affect the operations, strategies, or policies of an organization.

Guaranteed Annual Dividend

A promise by a company to pay shareholders a minimum dividend each year.