Mary Ellen Dillon is an audit partner with a large public accounting firm. Recently, one of her long-standing clients suddenly filed for bankruptcy protection. Mary Ellen's firm had previously issued an unqualified opinion on the client's financial statements. As a result, Mary Ellen's firm is being sued for negligence. Mary Ellen's best defense would be:
A) To challenge standing on the part of the defendant.
B) To cite the professional standards and maintain that the firm met the "prudent person" standard.
C) To cite the client's responsibility for the financial statements.
D) All of the above.

Question

Quizplus · Accepted Answer

Mary Ellen's best defense would be to cite the professional standards and maintain that the firm met the "prudent person" standard. The accounting firm would need to demonstrate that it complied with Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS) and exercised reasonable care and professional judgment in the performance of the audit. Challenging standing on the part of the defendant or citing the client's responsibility for the financial statements may not necessarily be relevant to the negligence suit.

Mary Ellen Dillon Is an Audit Partner with a Large