Edward, an accountant, certified a client's financial statements because he believed they were correct on the basis of his use of standard accounting and auditing practices. Later, while doing further work for the same client, Edward discovered information leading him to the conclusion that the financial statements he had certified were false and misleading. Which of the following statements is true of this scenario?

Question

Quizplus · Accepted Answer

It has been held that the duty of care of accountants extends beyond their actions during the audit itself. In one case, an accounting firm learned through further work for a client that figures in financial statements that it had certified a short time earlier were false and misleading. The court held that the accountants had a duty to disclose the unreliability of the earlier report to anyone who they knew was relying on it. Liability for failure to comply with this duty may be based on either negligence or fraud. In the given scenario, Edward has a duty to disclose the unreliability of the financial statements to anyone he knows is relying on the financial statements.

Edward, an Accountant, Certified a Client's Financial Statements Because He