While conducting an audit of a public entity,Wallace failed to identify material misstatements in its client's financial statements.Investors then sued Wallace in connection with this audit.Which of the following would not need to be demonstrated in order for the shareholders to successfully bring suit against Wallace?
A)Wallace was in privity with the shareholders.
B)The shareholders relied upon the materially misstated financial statements.
C)Wallace acted with gross negligence in his audit.
D)The reliance on the materially misstated financial statements caused the shareholders' losses.

Question

Quizplus · Accepted Answer

Privity with the shareholders is not required for them to successfully bring suit against Wallace. The other three choices are necessary elements for shareholders to successfully sue for negligent misstatement. They must have relied on the materially misstated financial statements, Wallace must have acted with gross negligence, and the reliance must have caused the shareholders' losses.

While Conducting an Audit of a Public Entity,Wallace Failed to Identify