At the request of James Company's management, E.G. audited James Company's financial statements and was aware that James's management intended to deliver the financial statements to its 25 shareholders for the purpose of repurchasing their shares for $50 per share (the investors had originally purchased the shares for $5 per share). The audit was conducted in accordance with generally accepted auditing standards and the financial statements were prepared in accordance with generally accepted accounting principles. Later, the shareholders sued the auditors, claiming that if they fully realized the significance of disclosures about the market value of the assets, they could have received $75 per share from James Company. The shareholders' lawsuit will probably fail because: the shareholders failed to prove lack of appropriate professional care on the part of auditors. the shareholders did not suffer a loss. the shareholders did not rely properly on the financial statements. the shareholders were not primary beneficiaries of the audit engagement and they have no standing to sue.
At the request of James Company's management, E.G. audited James Company's financial statements and was aware that James's management intended to deliver the financial statements to its 25 shareholders for the purpose of repurchasing their shares for $50 per share (the investors had originally purchased the shares for $5 per share). The audit was conducted in accordance with generally accepted auditing standards and the financial statements were prepared in accordance with generally accepted accounting principles. Later, the shareholders sued the auditors, claiming that if they fully realized the significance of disclosures about the market value of the assets, they could have received $75 per share from James Company. The shareholders' lawsuit will probably fail because:
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the shareholders failed to prove lack of appropriate professional care on the part of auditors.
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the shareholders did not suffer a loss.
-
the shareholders did not rely properly on the financial statements.
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the shareholders were not primary beneficiaries of the audit engagement and they have no standing to sue.
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