The public accounting firm of Hanson and Brown was expanding very rapidly. Consequently, it hired several staff
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At that time, Small was engaged in audits of several clients. He decided that, to avoid being fired, he would reduce or omit entirely some of the required auditing procedures listed in audit programs prepared by the partners. One of the public accounting firm's non-SEC clients, Newell Corporation, was in serious financial difficulty and had adjusted several of its accounts being examined by Small to appear financially sound. Small prepared fictitious working papers in his home at night to support purported completion of auditing procedures assigned to him, although he in fact did not examine the Newell adjusting entries. The public accounting firm rendered an unqualified opinion on Newell's financial statements, which were grossly misstated. Several creditors, relying upon the audited financial statements, subsequently extended large sums of money to Newell Corporation.
Required
Would the public accounting firm be liable to the creditors who extended the money in reliance on the erroneous financial statements if Newell Corporation should fail to pay its creditors? Explain.
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Related Book For
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany
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