Question

Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?

A. The CPA is liable only to third parties in privity of contract with the CPA.
B. The CPA is liable only to known users of the financial statements.
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud.
D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion

Answer 1

A CPA who commits fraud in an audit is likely liable to any person who suffered a loss as a result of that fraud, due to the intent to deceive which extends liability beyond direct contractual relations.

Step-by-step explanation:

Under common law, the most accurate reflection of the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements is that the CPA probably is liable to any person who suffered a loss as a result of the fraud. This is due to the egregious nature of the act of fraud, which generally implies an intent to deceive. In such cases, the courts have often held that liability extends beyond the direct relationship of privity and includes third parties who might have been reasonably foreseen to rely on the fraudulent financial statements.