Dex that it suspected that the accounts receivable were materially overstated . Although the financial statements audited by Dex did , in fact , include a materially overstated accounts receivable balance , Dex issued an unqualified opinion . Mead relied on the financial statements in deciding to obtain a loan from City Bank to expand its operations . City relied on the financial statements in making the loan to Mead . As a result of the overstated accounts receivable balance , Mead has defaulted on the loan and has incurred a substantial loss . If Mead sues Dex for negligence in failing to discover the overstatement , Dex ’ s best defense would be that
• Question 2 Doe and Co ., CPAs , issued an unqualified opinion on the 2012 financial statements of Marx Corp . These financial statements were included in Marx ’ s annual report and Form 10K filed with the SEC . Doe 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 , Fitch purchased stock in Marx . Shortly thereafter , Marx became insolvent , causing the price of the stock to decline drastically . Fitch has commenced legal action against Doe for damages based upon Section 10 ( b ) and Rule 10b-5 of the Securities Exchange Act of 1934 . Doe ’ s best defense to such an action would be that
• Question 3 A CPA firm was negligent in the audit of financial statements contained in a Form 10-K filed with the SEC . If an injured third party decided to file suit against the CPA , it would most likely be filed under
• Question 4 Dexter and Co ., CPAs , issued an unqualified opinion on the 2012 financial statements of Bart Corp . Late in 2010 , Bart determined that its treasurer had embezzled over $ 1,000,000 . Dexter was unaware of the embezzlement . Bart has decided to sue Dexter to recover the $ 1,000,000 . Bart ’ s suit is based upon Dexter ’ s failure to discover the missing money while performing the audit . Which of the following is Dexter ’ s best defense ?
• Question 5 Hugh , CPA , has developed an opinion for which tax avoidance is a significant purpose that is marketed to