A number of situations that pertain to the auditor's liability under common and statutory law are described below. At the end of each case, a statement is made concerning one or more of the parties in the suit.

1. In connection with a filing with the SEC, Elite Corporation engaged the public accounting firm of Turner and Miles to examine the financial statements in the registration statement. Two months after the registration statement became effective, it was discovered that a material fact was omitted from Elite's financial statements. One of the investors who acquired securities covered by the registration statement sued Turner and Miles. To win his lawsuit, the investor must prove Turner and Miles was negligent or fraudulent in reporting on the financial statements.

2. Assume it was established the accountants in question 1 were negligent in certifying Elite's financial statements. They could avoid or reduce their liability by showing that the investor's loss was not due to the omission of the material fact.

3. Assume that:

a. An auditor issued an unqualified opinion on a set of financial statements containing a material misstatement.

b. The auditor did not know of the misstatement but failed to observe generally accepted auditing standards in performing his examination

c. The owner of another company purchased the firm, although he was aware of the misstatement before doing so. He never apprised the auditor of the misstatement.

d. After the purchase was completed, the purchaser sued the auditor for damages, asserting the auditor had violated the Federal Securities Laws (Paragraph 10

(b) of the Securities Act of 1934, etc.) and accusing him of common law fraud and negligence. The purchaser would be successful in his suit against the auditor.

4. The BarChris decision affirms the proposition, among others, that a court can impose its judgment, in place of the judgment of the auditor, on matters of accounting and auditing practices.

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Indicate whether you believe the statements made above are true or false. Give reasons in support of your answer.