Each question is worth points for a total of points. The legal issue for each is worth points, the rule of law is worth points, the analysis is worth points, and the right answer is worth points.

1. In April, 2016, Hughes, Inc. issued and sold 100,000 shares of stock at $ 100 per share. Deloitte prepared the registration statement for these newly issued shares to comply with the 1933 Securities Act.

Deloitte had done an audit for Hughes in 2015 and discovered deficiencies in internal controls. In that audit Deloitte's auditing team determined that three of the flaws in Hughes' internal controls constituted "reportable conditions." A reportable condition is an internal control weakness that, in the auditor's judgment, represents a "significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements." Deloitte reported this to management, but nothing had been done to change those problems. When the April 2016 registration statement was filed, it did not contain any information about the problematic internal controls.

Assume that this lack of controls caused a substantial decline in the price of that stock and you as a purchaser of some of those shares have sued Deloitte to recover your losses. Could you win or not? Explain fully with the appropriate rule of law and a complete legal analysis.

2. Your accounting firm help prepare a 10k filing under the 1934 Securities and Exchange Act, for a real estate investment corporation. The filing contained valuation of large tracts of vacant land owned by company in Colorado. When stating the value of this land in the 10K you relied on the valuation by an appraiser hired by the real estate corporation. The facts will show that when that real estate appraiser first valued this land, she valued it at $500 per acre. When that was presented to CEO of the corporation he said that was not high enough because they had paid $2000 per acre for it prior to the 2008 crash and it needed to be valued at least at $2500 hundred per acre. When the appraiser refused they change her mind, the CEO hired another appraiser and made it clear that the land must be valued at $2500 per acre. This appraiser was promised a lot of money for appraising it at that value. You, as the auditor did not know anything about that, but could have discovered the truth.

Investors in this company have now sued you because once this fraud was disclosed the value of their shared dropped substantially, and they want the money they lost from your accounting firm. Will you win or lose? Explain fully with the correct rule and a complete explanation.

3. You have a client you wants you to advise her on the purchase of a business, in regard to what a fair price would be. The client is relying on your advice as an CPA who has the knowledge to provide this type of advice. The client brings you the information from the seller of the business about what it should be worth.

The seller hired Willamette a professional whose business it is to appraise businesses that are for sale and establish a fair value. Willamette chose three methods -- historical price-earnings multiple, historical price-cash flow multiple, and projected earnings and cash flow multiple. In the case of the historical earnings calculations, Willamette multiplied the Company's 2015 earnings per share by the average price-earnings multiple of 11 comparable publicly traded firms. Willamette then multiplied the Company's average earnings per share for 3 years, 2012-2014, by the average multiple the comparable firms were trading at over their 2012-2014 average earnings. Willamette weighted these values (70 percent 2015 earnings, 30 percent 2012-2-14 earnings) to come up with a weighted average. To these numbers the value of the physical assets were added (furniture/fixture, equipment, etc.), to come up with a fair price for the business.

You know who Willamette is and that he has a good reputation, so you decide to rely on this information and advise your client that what Willamette came up with seems to be a fair price.

After your client purchases the business, the client discovers that the price was much more than market value. The facts will show that there had been two very recent definitive offers for the company that were much lower than what you paid. Those offerors had developed well-informed opinions on the value of the Company.

Your client has sued you for the loss that he suffered due to paying too much for the business, could you be liable? Use the correct rule of law and do a complete analysis.