Effective Writing 10th Edition by Claire May,Gordon May

Exercise 5

Saylor Company is a brokerage firm registered under the Securities Exchange Act of 1934, which requires Saylor to file audited financial statements with the SEC annually. Your firm, O'Brien and Sherrill, Saylor's CPAs, performed the annual audit for the year ended December 31, 2013, and rendered an unqualified opinion, which was filed with the SEC along with Saylor's financial statements. During 2013, a Saylor employee engaged in a massive embezzlement scheme that eventually bankrupted the company and resulted in substantial losses suffered by its customers and shareholders, including some shareholders who had purchased shares of Saylor Company after reviewing the company's 2013 audit report. O'Brien and Sherrill's audit was deficient; if it had fully complied with auditing standards, the embezzlement would have been discovered. However, the CPA firm had no knowledge of the embezzlement, and their conduct cannot be characterized as reckless.
Hugh O'Brien, partner-in-charge of O'Brien and Sherrill, has asked you to write a report discussing the different theories of liability available to the customers and stockholders of Saylor Company under common law and what liability your firm may have under the Securities Exchange Act of 1934.
Write the report requested by Mr. O'Brien.