Which of the following is the best defense that auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements?
A) Contributory negligence on the part of the client.
B) A disclaimer contained in the engagement letter.
C) Lack of privity.
D) Lack of scienter.

Question

Quizplus · Accepted Answer

Lack of scienter, which means lack of intent or knowledge of wrongdoing, is the best defense auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements. Contributory negligence on the part of the client, a disclaimer contained in the engagement letter, and lack of privity may offer some protection but are not as strong a defense as lack of scienter.

Which of the Following Is the Best Defense That Auditors