Takema Yost$$ & Co$.,$ a$$ medium$-$sized CPA$$ firm, was engaged to audit Stuart Supply Company. Several staff were involved in the$$ audit, all of whom had attended the$$ firm's in$-$house training program on effective auditing methods. Throughout the$$ audit, Yost spent most of her time in the field planning the$$ audit, supervising the$$ staff, and reviewing their work.

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Part $1$

Requirement a$.$ What defense should Takema Yost$$ & Co$.$ use in the suit by$$ Stuart?

Takema Yost$$ & Co$.$ should use the defenses of

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$$

absence of casual connection

breach of contract

joint and several liability

nonnegligent performance

and

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$$

constructive fraud

contributory negligence

criminal liability

lack of duty to perform

$.$

The fraud perpetuated by Stuart Supply Company was a reasonably

$$

$$

complex

simple

one and

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difficult

easy

to uncover except by the procedures suggested by Yost.

In most circumstances it

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$$

would

would not

be necessary to physically count all inventory at different locations on the same day.$$ Furthermore, the president of the company contributed to the failure of finding the fraud by

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allowing management to perpetrate fraud

physically transporting inventory and conspiring to materially overstate inventory

refusing to follow Yost's suggestion

signing the engagement letter

$.$

There is evidence of that through his signed statement.

Part $2$

Requirement b$.$ What$$ defense$($s$)$ should Takema Yost$$ & Co$.$ use in the suit by First City National$$ Bank?$($Select all that$$ apply.$)$

A$.$

the firm employed due care and followed auditing standards in the audit of inventory

B$.$

contributory negligence

C$.$

lack of privity of contract

D$.$

breach of contract

Part $3$

Requirement c$.$ Is Yost likely to be successful in these$$ defenses?

She is likely to be

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$$

successful

unsuccessful

in her defense against the client because

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$$

of the breach of contract by the client

of the contributory negligence by the client

of the lack of due care in her audit of inventory

of the signed statement by the president of Stuart

$.$

She is likely to be

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$$

successful

unsuccessful

in her defense against the bank because

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$$

of the constructive fraud by the client

of the employment of due care in her audit of inventory

she recklessly misrepresented information for third party use

the accounting records were inadequate to uncover the illegal transfers

$.$

Part $4$

Requirement d$.$ Would the issues or outcome be significantly different if the suit was brought under the Securities Exchange Act of$1934?$

The issues and outcomes should be

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$$

different

the same

under the suit brought under the Securities Exchange Act of $1934.$ If the suit were brought under Rule$10$b$-5,$ it is certainly

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$$

likely

unlikely

that the plaintiff would be$$ successful, inasmuch as there was

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$$

a lack of duty to perform

intent to deceive

negligent performance

no intent to deceive

$.$