The next two questions, 3. And 4. involve litigation against auditors.

3. You are a partner in a CPA firm, and you just were served with a summons and complaint by a financial firm to appear in the NYS Supreme Court based upon an audit that your firm performed three years ago. That client is no longer in business, and the plaintiff finance company believes that the unqualified opinion that accompanied the financial statements was in error. Of the lawsuits cited in the textbook which would enable your auditing firm to have the best outcome? Why?

4. You are the accountant for XYZ Corp., a successful family business for over 20+ years. Now that the business has grown and matured, the matriarch and majority stockholder, Dean Markus, want to go public. You prepare the audited financial statements, as you have for the last 20+ years, and file the required registration statement. However, you inadvertently fail to disclose that the land upon which the XYZ Corp. factory is situated has a lease that will terminate in the next three years. Initially, the stock does well in the stock market. However, at the first annual meeting of shareholders, the news breaks about the lease arrangement, and the next day the shares of XYZ plummet. If shareholder, Jim Flannigan, decides to commence a lawsuit, will he prevail?