While Conducting an Audit,Larson & Larson Chartered Accountants Failed to Detect

question 33

Multiple Choice

While conducting an audit,Larson & Larson Chartered 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.

---

Definitions:

Straight-Line Methods

Straight-line methods are used in accounting to allocate the cost of an asset evenly over its useful life for the purposes of depreciation.