While Auditing the Financial Statements of Forble Corp

question 27

Essay

While auditing the financial statements of Forble Corp. (which are to be included in a Securities Act registration statement), Ernie, a certified public accountant, fails to review any of Forble's journal entries, does not read the details of meetings of the board of directors, and does not even speak with the comptroller of Forble. Consequently, Ernie does not discover that substantial loans, which went unmentioned in the financial statements, had been made to Forble officers. As a result, the registration statement omits any mention of the loans. Assuming the omitted fact is a material one and that Ernie is not an officer or director of Forble, does Ernie face potential liability under Section 11 of the Securities Act of 1933? Discuss the reasons for your answer.

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Definitions:

Organizational Goals

The objectives that a company aims to achieve, which guide its operations and strategic planning.

High Machs

Individuals characterized by a high Machiavellianism trait, often noted for manipulation and a strategic mindset in interpersonal relationships.

Sabotage

Sabotage involves deliberate actions aimed at damaging, disrupting, or subverting systems, processes, or organizations, often for personal gain or to make a political or social statement.

Theft

The act of stealing; the wrongful taking and carrying away of the personal goods or property of another.