Smith Corp. orally engaged TRA CPAs, to audit its financial statements. The management of Smith Corp....

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Accounting

Smith Corp. orally engaged TRA CPAs, to audit its financialstatements. The management of Smith Corp. informed TRA CPAs that itsuspected that the accounts receivable was materially overstated.Although the financial statements audited by TRA CPAs did, in fact,include a materially overstated accounts receivable balance, TRAissued an unqualified opinion. Smith Corp then relied on thefinancial statements in deciding to obtain a loan from Town Bank toexpand its operations and Town Bank relied on the financialstatements in making the loan to Smith Corp. As a result of theoverstated accounts receivable balance, Smith Corp. has defaultedon the loan and has incurred a substantial loss. If Smith Corp suesTRA CPAs for negligence in failing to discover the overstatement,what is TRA CPA's best defense?

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3.6 Ratings (696 Votes)

IN THIS CASE THE AUDITOR ISSUED AN UNQUALIFIED OPINION WHICH MEANS THAT THE FINANCIAL STATEMENT IS AS PER THE GUIDELINES OF A I CPA AND THE ACCOUNTS ARE FAIR AND APPROPRIATE SO IT IS CLEAR THAT AUDIT REPORT IS BIASSED BUT THE MAIN LOOP HOLE IN See Answer

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