A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?

a. The misstatement is immaterial in the overall context of the financial statements.

b. The CPA detected the misstatement after the audit report date.

c. The investor has not proven CPA negligence.

d. The investor did not rely upon the financial statement.

Question

Business

Ismael Dudley

28 November, 10:38

A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?

a. The misstatement is immaterial in the overall context of the financial statements.

b. The CPA detected the misstatement after the audit report date.

c. The investor has not proven CPA negligence.

d. The investor did not rely upon the financial statement.

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Answers (1)

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Dylan Rush · Answer 1

The misstatement is immaterial in the overall context of the financial statements represents a viable defense.

Option: A

Explanation:

An object may be immaterial individually, but when it is consolidated with lots of immaterial objects it can be material. When this happens, then the impact becomes material. A mistake of an individual element may cause serious misrepresentation of the financial statements.

Materiality direct to the relative size of a number as the relatively large quantities are content, while the relatively small quantities are not material or immaterial. A further perception of materiality is that sophisticated investors will be deceived by omitting or misclassifying the number.