B is corrent because under common law, a third party (e.g., a stockholder) attempting to sue a CPA for fraud must prove that damages were incurred, there was a material misstatement or omission of a material fact in the financial statements, and that there was justifiable reliance on the financial statements which led to the damages. Of the defenses listed, the CPA’s best defense is that the false statements were immaterial because it relates directly to the second requirement needed to successfully sue the CPA for fraud.
A is incorrect because common law does not require privity to be established in a suit for fraud against a CPA based on false statements contained in the financial statements audited by the CPA.
C is incorrect because proof of the client’s contributory negligence will not relieve the CPA of liability to third parties.
D is incorrect because CPAs cannot release themselves from liabilities to third parties by specifically disclaiming such liability in the engagement letter.
|
