While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. In a suit by a purchaser against Larson for common-law negligence, Larson's best defense would be that theA. audit was conducted in accordance with generally accepted auditing standards. B. client was aware of the misstatements. C. purchaser was not in privity of contract with Larson. D. identity of the purchaser was not known to Larson at the time of the audit.

While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. In a suit by a purchaser against Larson for common-law negligence, Larson's best defense would be that the audit was conducted in accordance with generally accepted auditing standards - option A.

Explanation:

In the scenario given, Larson did not have actual or constructive knowledge of the material misstatements so he audited according to the PCAOB auditing standards in the audit.

Thus, Larson's best defense would be that the audit was conducted in accordance with generally accepted auditing standards - option A.

answer; functional fixedness;