Lauren Yost&Co., a medium-sized CPA firm, was egaged to audit stuart supply company. several staff were involved in the audit, all of whom had attended the firm's in house training program on effective auditing methods. Throughout the audit, yost spent most of her time in the field planning the audit, supervising the staff, and reviewing their work. A significant part of the audit entaied verifying the physical counts, cost, and summarization of inventory. Inventory was highly significsnt to the financial statements, and yost knew the inventory was pledged as collateral for a large loan to first city national Bank. In reviewing stuart's inventory count procedures, Yost told the president she believed the method of counting inventory at diffrent locations on diffrent days was highly undesirable. The president stated that it was impractical to count all inventory on the same day because of personnel shortages and customer preference. after considerable discussion, Yost agreed to permit the practice if the president would sign a statement that no other method was practical. The CCPA firm had at least one persn at each site to audit the inventory count procedures and actual count. There were more than 40 locations. eighteen months later, Yost found out that the worst had happend. Management below the president's level had conspired to materially overstate inventory as a means of coverng up obsolete inventory and inventory losses resulting from mismanagement. the misstatement occurred by physically transporting inventory at night to other locations after it had been counted in a given location. The accounting records were inadequate to uncover these illegal transfers.
Answer the following problems, detting four reasons for any conclusion stated.
a)what defnse should lauren Yost, Co. use in the suit by Stuart?
b)What defense should lauren yost&Co, use in the suit by first City national Bank?
c)Is yost likely be successful in her defenses?
d) would the issues or outcome be significantly different if the suit was brought under the securities Exchange Act of 1934?