For several years, the CPA firm of Carter, Reed, & Co. has audited Cobra Corporation, a closely held manufacturing company that is not under SEC jurisdiction. Cobra is now planning to "go public," issuing common shares to the public and using the proceeds to finance growth. The planned stock offering would put the company under the jurisdiction of the SEC.

Required:

Discuss the reasons why the CPA firm's potential legal liability with respect to this client will increase substantially if the company "goes public."