A CPA firm issues an unqualified opinion on financial statements not prepared in accordance with GAAP. The CPA firm will have acted with scienter in all the following circumstances, except where the firm:

A) Intentionally misrepresents facts.
B) Knowingly disregards GAAP requirements.
C) Negligently performs auditing procedures.
D) Recklessly fails to verify key information.

Question

23-12-2023
Business

High School

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A CPA firm issues an unqualified opinion on financial statements not prepared in accordance with GAAP. The CPA firm will have acted with scienter in all the following circumstances, except where the firm:

A) Intentionally misrepresents facts.
B) Knowingly disregards GAAP requirements.
C) Negligently performs auditing procedures.
D) Recklessly fails to verify key information.

Answer :

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oishi35 oishi35 · Answer 1 · 2023-12-28T12:26:06-05:00

Final answer:

A CPA firm issuing an unqualified opinion on non-GAAP financial statements would not be considered to be acting with scienter in the case of negligence, as scienter implies intent or reckless disregard, unlike negligence, which can occur without intent.

Explanation:

The subject of this question revolves around an accounting firm that issues an unqualified opinion on financial statements which are not in accordance with the Generally Accepted Accounting Principles (GAAP). In the context of auditing and CPA firms, 'scienter' refers to the knowledge of and intent to commit wrongdoing, such as fraud or misrepresentation. In three of the circumstances listed (A, B, and D), the actions imply a degree of intent or recklessness in disregarding the true financial situation, which would suggest acting with scienter.

However, option C) Negligently performs auditing procedures, does not necessarily imply scienter because negligence can occur without malicious intent or conscious disregard for the rules. Negligence indicates a lack of due care or failure to perform one's duties with the competence that is expected, but it does not equate to the intentional or knowingly fraudulent behavior that scienter would require.