Sun Corp.approved a merger plan with Cord Corp.One of the determining factors in approving the merger was the financial statements of Cord that were audited by Frank & Co.,CPAs.Sun had engaged Frank to audit Cord's financial statements.While performing the audit,Frank failed to discover certain irregularities that later caused Sun to suffer substantial losses.For Frank to be liable under common law liability,Sun at a minimum must prove that Frank
A)Knew of the irregularities.
B)Failed to exercise the appropriate level of professional care.
C)Demonstrated gross negligence.
D)Acted with scienter.

Question

Quizplus · Accepted Answer

Under common law liability, the auditor is required to exercise a reasonable level of professional care while conducting the audit. The auditor's failure to exercise the appropriate level of care can result in liability for any damages incurred by the client. Therefore, Sun must prove that Frank failed to exercise the appropriate level of professional care while performing the audit. Option A is incorrect because knowledge of irregularities is not necessary for liability under common law. Option C is incorrect because gross negligence is a higher standard than the reasonable level of professional care required under common law. Option D is also incorrect because scienter (intentional wrongdoing) is not necessary for liability under common law.

Sun CorpApproved a Merger Plan with Cord Corp