EBK AUDITING & ASSURANCE SERVICES: A SY
11th Edition
ISBN: 9781260687668
Author: Jr
Publisher: MCGRAW-HILL LEARNING SOLN.(CC)
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Chapter 20, Problem 20.22MCQ
To determine
Concept Introduction:
The purpose of an issuer of the securities was to provide full and fair disclosure of the financial statements. The investor is the person who deals in the securities issued by the issuer. If the investor suffered a loss due to misstatements of financial statements, then investor has to prove that the investment in securities based on misstated financial statements.
To choose: The option that purchaser has to prove about his reliance on the audited financial statements.
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Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors.
Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss.
If Apex Construction also sues Williams for negligence, what are the probable legal defenses Williams’s attorney would raise?…
Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors.
Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss.
What liability does Williams have to Jackson Financial? Explain
Nixon & Co., CPAs, issued an unmodified opinion on the 2015 financial statements of Madison Corp. These financial statements were included in Madison’s annual report and Form 10-K filed with the SEC. Nixon did not detect material misstatements in the financial statements as a result of negligence in the performance of the audit. Based upon the financial statements, Harry Corp. purchased stock in Madison. Shortly thereafter, Madison became insolvent, causing the price of the stock to decline drastically. Harry has commenced legal action against Nixon for damages based upon Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. What would be Nixon’s best defense to such an action? Explain.
Chapter 20 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
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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