AUDITING & ASSURANCE SERVICES CONNECT AC
10th Edition
ISBN: 9781259292057
Author: MESSIER
Publisher: MCG
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Chapter 20, Problem 20.18MCQ
To determine
Concept Introduction:
The issuer of the registration statement may be liable if it contains material errors and the issuer creating the registration statement is also subject to liability. The Plaintiff who suffered from the wrong information in the financial statement may cause the monetary loss and the plaintiff has the right to recover as damages.
To choose:The correct option.
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Students have asked these similar questions
When investors sue auditors for damages under section 11 of the Securities Act of 1933,they must allege and provea. Scienter on the part of auditors.b. The audited financial statements contained a material misstatement.c. They relied on the materially misstated financial statements.d. Their reliance on the materially misstated financial statements was the direct cause oftheir loss.
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?
A. The CPA is liable only to third parties in privity of contract with the CPA
B. The CPA is liable only to known users of the financial statements
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud
D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion
The following pertains to auditor legal liability standards under the PSLRA:a. The Reform Act requires that, in any private securities fraud action in which the plaintiff is alleging a misleading statement or omission on the part of the defendant, “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.”90Do you believe this standard better protects auditors from legal liability than the standards which existed before the PSLRA? Explain.b. Do you believe the change in standards for auditors’ liability under the PSLRA from joint-and-several to proportional liability was a good thing? Explain.
Chapter 20 Solutions
AUDITING & ASSURANCE SERVICES CONNECT AC
Ch. 20 - Prob. 20.1RQCh. 20 - Prob. 20.2RQCh. 20 - Prob. 20.3RQCh. 20 - Prob. 20.4RQCh. 20 - Prob. 20.5RQCh. 20 - Prob. 20.6RQCh. 20 - Prob. 20.7RQCh. 20 - Prob. 20.8RQCh. 20 - Prob. 20.9RQCh. 20 - Prob. 20.10RQ
Ch. 20 - Prob. 20.11RQCh. 20 - Prob. 20.12RQCh. 20 - Prob. 20.13RQCh. 20 - Prob. 20.14MCQCh. 20 - Prob. 20.15MCQCh. 20 - Prob. 20.16MCQCh. 20 - Prob. 20.17MCQCh. 20 - Prob. 20.18MCQCh. 20 - Prob. 20.19MCQCh. 20 - Prob. 20.20MCQCh. 20 - Prob. 20.21MCQCh. 20 - Prob. 20.22MCQCh. 20 - Prob. 20.23MCQCh. 20 - Prob. 20.24MCQCh. 20 - Prob. 20.25MCQCh. 20 - Prob. 20.26PCh. 20 - Prob. 20.27PCh. 20 - Prob. 20.28PCh. 20 - Prob. 20.29P
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Similar questions
- Which of the following would be the auditors’ most likely defense in an action broughtunder the Securities Exchange Act of 1934?a. The investor did not have privity with auditors.b. The investor did not suffer a loss based on the materially misstated financial statements.c. The auditors acted in good faith and were not aware of the materially misstated financialstatements.d. The financial statements were not filed with the Securities and Exchange Commissionarrow_forwardWhat does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence?arrow_forwardWhat does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence? Explain each item with an examplearrow_forward
- Select the necessary words from the list of possibilities to complete the following statements.arrow_forwardPlease answer with reason for all why the option is correct and why the other options are incorrectPlease answer correct otherwise skip it Which of the following statements about the Securities Act of 1933 is not true? A. The auditor will not be liable if he or she can demonstrate due diligence in performing the audit. B. The third-party user does not have the burden of proof that he or she relied on the financial statements. C. The third-party user does not have the burden of proof that the loss was caused by the misleading financial statements. D. The third party has the burden of proof that the auditor was either negligent or fraudulent in doing the audit.arrow_forwardAn investor seeking to recover stock market losses from a CPA firm associated with aninitial offering of securities based on an unmodified opinion on financial statements thataccompanied a registration statement must establish thata. The audited financial statements contain a false statement or omission of material fact.b. The investor relied on the financial statements.c. The CPA firm did not act in good faith.d. The CPA firm would have discovered the false statement or omission if it had exerciseddue care in its examination.arrow_forward
- A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense? A) The investor has not proven CPA negligence. B) The CPA detected the misstatement after the audit report date. C) The audit work was adequate to support the CPA's opinion. D) The investor did not rely upon the financial statement.arrow_forwardAn investor or creditor believes that they have suffered harm due to the unexpected the bankruptcy of a large corporation: Required: Can that investor or creditor sue the auditor of the large corporation under contract law? Explain. If the investor or creditor chooses to sue the auditor of the large corporation under tort law, what must they prove before their claim can succeed? How can the auditor contest a claim of negligence?arrow_forwardAn auditor issued an unqualified opinion on financial statements that failed to disclose that a significant portion of the accounts receivable was uncollectible. The auditor also failed to follow professional auditing standards with respect to inventory. The auditor knew that the client would use the financial statements to obtain a loan. The client subsequently declared bankruptcy. Under what concepts might a creditor, who loaned money to the client based on the financial statements, recover losses from the auditor?arrow_forward
- Which of the following are financial statement frauds? Select which three options are correct. A. Intentional misapplication of accounting principles related to amounts. B. Forging of accounting records C. Intentional misapplication of accounting principles related to disclosure. D. Unintentional omission from the financial statements of transactionsarrow_forwardA group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoidliability under the common law, AOW must demonstrate which of the following?a. The investors actually suffered a loss.b. The investors relied on the financial statements audited by AOW.c. The investors’ loss was a direct result of their reliance on the audited financial statements.d. The audit was conducted in accordance with generally accepted auditing standards andwith due professional care.arrow_forwardIn a common law action against an accountant, lack of privity is a viable defense ifthe plaintiff(1) is the client’s creditor who sues the accountant for negligence.(2) can prove the presence of gross negligence that amounts to a reckless disregardfor the truth.(3) is the accountant’s client.(4) bases the action upon fraud.arrow_forward
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