Question 11 James Electronics is interested in purchasing Dyner Corp. Prior to the purchase James hired Prime CPA to audit the financial statements of Dyner. During the audit, Prime CPA failed to discover a fraud that resulted in material misstatements in Dyner's financial statements. After the acquisition, the fraud was discovered and James Electronics suffered substantial losses. If James Electronics sues Prime CPA, James Electronics must prove that Prime CPA: 1. acted recklessly or with lack of reasonable grounds for belief. 2. knew of the instances of fraud. 3. failed to exercise the appropriate level of professional care. 4. demonstrated gross negligence. O 2 O 3 O 4

Question 11 James Electronics is interested in purchasing Dyner Corp. Prior to the purchase James hired Prime CPA to audit the financial statements of Dyner. During the audit, Prime CPA failed to discover a fraud that resulted in material misstatements in Dyner's financial statements. After the acquisition, the fraud was discovered and James Electronics suffered substantial losses. If James Electronics sues Prime CPA, James Electronics must prove that Prime CPA: 1. acted recklessly or with lack of reasonable grounds for belief. 2. knew of the instances of fraud. 3. failed to exercise the appropriate level of professional care. 4. demonstrated gross negligence. O 2 O 3 O 4

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity

Section: Chapter Questions

Problem 40FF

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