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solution 5-23(a,B,c)

solution 5-23(a,B,c) - cm ter_5_Solutions_Manuai[zoos(921...

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Unformatted text preview: cm ter_5_Solutions_Manuai [zoos-(921 14:09:29) -Windows Internet [Itplurer __ ‘ -. . (fl Enapfisn b5.» HF' Q HF‘Garnes flu] Learn at HP ' 'le WW *i’ifitl'fi'fi'l'Elerl'fi “Wig“; g Secure Search Iii 'fi‘McAfe-e‘ ' ' )) seal... -... @Cwmssmaiomm... x lgmmiiwmemmi | a “t“? 53 Q @499" @Teeb' 5-23 a. Yes. Smith was a party to the issuance of false financial statements. The elements necessary to establish an action for common iaw fraud are present. There was a material misstatement of fact, knowledge of falsity (scienter). intent that the plaintiff bank rely on the false statement. actual reliance. and damage to the bank as a result thereof. If the action is based upon fraud there is no requirement that the bank establish privity of contract with the CPA. Moreover. if the action by the " bank is based upon ordinary negligence. which does not require a showing of scienter. the bank may recover as a third-party beneficiary because it is a primary beneficiary. Thus. the bank will be able to recover its loss from Smith under either theory. b. No. The lessor was a party to the secret agreement. As such, the lessor cannot claim reliance on the financial statements and cannot recover uncollected rents. Even if the lessor was damaged indirectly, his or her own fraudulent actions led to the loss, and the equitable principle of I "unclean hands" precludes the lessor from obtaining relief. - c. Yes. Smith had knowiedge that the financial statements did not follow generally accepted accounting principles and willingty prepared an unqualified opinion. That is a criminal act because there was an intent to deceive. 5- 24 Ward 8: East's strongest defense would be that they exercised due care in performing the audit and that they adhered to auditing standards. The fact that 1--_-- n n- I-A-- x... ...-1 e--.. _| -I--. .|.| ----------- as. -u--- LL- ---._ z... -- ... _-L. -- httpcvirwwyahooxonflfrdptb msgr a Internet l Protected Mode: On Q 100% V J5 Q‘J iTune: ." Chapterji... r: auditing an... ._ . -'.j r; Ta:-:I.I|a:: E... 2 Jodha Alibi... El chapterlfl I: solution 5-... ...
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