Do you believe the legal standards of allegations with “particularly sufficient facts” and of “no audit at all” cited in ABAT under Section 10(b) of the Securities Exchange Act of 1934 are too strict, too lenient, or just about right with respect to auditors’ legal liability in cases similar to ABAT?

I’m working on a accounting discussion question and need an explanation and answer to help me learn.

1. Do you believe the legal standards of allegations with “particularly sufficient facts” and of “no audit at all” cited in ABAT under Section 10(b) of the Securities Exchange Act of 1934 are too strict, too lenient, or just about right with respect to auditors’ legal liability in cases similar to ABAT? Explain.

2. In ABAT, the plaintiffs alleged that the auditors falsely represented that they performed their audits in accordance with professional standards and that ABAT’s financial statements were fairly presented. The amended complaint alleged that the audit firms were reckless and committed an “extreme departure from the reasonable standards of care” by failing to identify several purported “red flags.” Do you believe the failure to identify red flags should be sufficient in a court of law to successfully allege gross negligence? Include in your answer the purpose of auditors looking to detect red flags as part of their audits in accordance with GAAS.

3. Do you believe that auditors should be held legally liable when their filings to the SEC are [overly] optimistic, while filings with Chinese regulatory agencies are [unduly] pessimistic? Explain, using ethical reasoning to craft your answer.