While conducting an audit,Larson Associates,CPAs,failed to detect material misstatements included in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a registration statement and 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.In a suit by a purchaser against Larson,its best defense would be that the
A) Audit was conducted in accordance with generally accepted auditing standards.
B) Client was aware of the misstatements.
C) Purchaser was not in privity of contract with Larson.
D) Larson did not know the identity of the purchaser at the time of the audit.

Question

Quizplus · Accepted Answer

If Larson Associates can demonstrate that the audit was conducted in accordance with generally accepted auditing standards (GAAS), it would be a strong defense, as it would indicate that they exercised due professional care and followed the appropriate procedures, even if they failed to detect the misstatements.

While Conducting an Audit,Larson Associates,CPAs,failed to Detect Material Misstatements Included