Major, Major, and Sharpe, CPA's, are the auditors of MacLain industries. In connection with the public offering of $10 million of MacLain securities, Major expressed an unqualified opinion as to the financial statements. Subsequent to the offering, certain misstatements and omissions are revealed. Major has been sued by the purchasers of the stock offered pursuant to the registration statement, which include the financial statements audited by Major. In the ensuing lawsuit by the MacLain investors, Major will be able to avoid liability if
A) The errors and omissions were caused primarily by MacLain
B) It can be shown that at least some of the investors did not actually read the audited financial statements
C) It can prove due diligence in the audit of the financial statements of MacLain
D) MacLain had expressly assumed any liability in connection with the public offering

Question

Quizplus · Accepted Answer

The best choice is C because if Major can prove that they exercised due diligence during the audit and detected any misstatements or omissions through appropriate audit procedures, they may avoid liability. Options A, B, and D do not provide a valid defense against the lawsuit. While MacLain may have contributed to the errors and omissions, it does not absolve Major of their responsibility as auditors. Whether or not investors read the financial statements is irrelevant to Major's duty to audit them. Lastly, MacLain assuming liability does not remove Major's responsibility as auditors to issue a proper opinion on the financial statements.

Major, Major, and Sharpe, CPA's, Are the Auditors of MacLain