Question

A CPA issued an unqualified opinion on a financial statements of a company that sold common stock in a public offering subject to the SEC act of 1933, based on a misstatement in the financial statements the CPA is being sued by an investor who purchased shares of this offering. What would be the CPA's defense?

Answer 1

The CPA can defend themselves by using the doctrine of contributory negligence, lack of privity, and by proving they acted in accordance with auditing standards.

Step-by-step explanation:

If a CPA is sued by an investor for issuing an unqualified opinion on financial statements that contained a misstatement, there are several possible defenses that the CPA can use. One potential defense is the doctrine of contributory negligence, which states that the plaintiff's own negligence contributed to their losses. The CPA can argue that the investor failed to exercise due diligence in reviewing the financial statements and should have detected the misstatement themselves.

Another defense is the lack of privity between the CPA and the investor. The CPA can argue that they had no direct contractual relationship with the investor and therefore should not be held liable for any losses. Lastly, the CPA can assert that they conducted their audit in accordance with generally accepted auditing standards and acted in good faith. They can provide evidence of the procedures and professional judgment utilized during the audit to support their case.