Question 1

Which term means a person knew or should have known that their actions were likely to cause harm?

Accepted Answer

A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent 
A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent

Question 2

The problem of a compliance approach in implementing standards is that it can result in:

Accepted Answer

A)  Achieving informal compliance without considering ethical consequences 
B)  Achieving a true and fair view with respect to the auditor's report 
C)  Achieving a dual system of boards of directors 
D)  Achieving formal compliance without considering ethical consequences 
A)  Achieving informal compliance without considering ethical consequences 
B)  Achieving a true and fair view with respect to the auditor's report 
C)  Achieving a dual system of boards of directors 
D)  Achieving formal compliance without considering ethical consequences

Question 3

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Accepted Answer

A)  Second National Bank & Trust declining to extend the loan 
B)  Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets 
C)  Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory 
D)  Holligan declaring bankruptcy without a going-concern emphasis of matter 
A)  Second National Bank & Trust declining to extend the loan 
B)  Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets 
C)  Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory 
D)  Holligan declaring bankruptcy without a going-concern emphasis of matter

Question 4

The term "true and fair view" tends to be a replacement for ________ used in the U.S.

Accepted Answer

A)  Full and fair 
B)  Present fairly 
C)  Representational faithfulness 
D)  Economic substance 
A)  Full and fair 
B)  Present fairly 
C)  Representational faithfulness 
D)  Economic substance

Question 5

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5?

Accepted Answer

A)  Material, factual misrepresentation or omission 
B)  Error by auditor led to plaintiffs' loss 
C)  Reliance by the plaintiff on the financial statements 
D)  Damages suffered by plaintiff as a result of reliance on the financial statements 
A)  Material, factual misrepresentation or omission 
B)  Error by auditor led to plaintiffs' loss 
C)  Reliance by the plaintiff on the financial statements 
D)  Damages suffered by plaintiff as a result of reliance on the financial statements

Question 6

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for:

Accepted Answer

A)  Ordinary negligence 
B)  Gross negligence 
C)  Deficient tax work 
D)  Write-up work 
A)  Ordinary negligence 
B)  Gross negligence 
C)  Deficient tax work 
D)  Write-up work

Question 7

An audit engagement letter:

Accepted Answer

A)  Offers an auditor's services to a client 
B)  Is required by generally accepted auditing standards (GAAS) 
C)  Details the SEC's expectations for the audit firm for a specific engagement 
D)  Formalizes the relationship between the auditor and the client for a specific engagement 
A)  Offers an auditor's services to a client 
B)  Is required by generally accepted auditing standards (GAAS) 
C)  Details the SEC's expectations for the audit firm for a specific engagement 
D)  Formalizes the relationship between the auditor and the client for a specific engagement

Question 8

The key element that protects an auditor against common law liability is:

Accepted Answer

A)  Adherence to generally accepted accounting principles (GAAP) 
B)  Adherence to generally accepted auditing standards (GAAS) 
C)  Compliance with threats and safeguards approach 
D)  Maintain confidentiality of client information 
A)  Adherence to generally accepted accounting principles (GAAP) 
B)  Adherence to generally accepted auditing standards (GAAS) 
C)  Compliance with threats and safeguards approach 
D)  Maintain confidentiality of client information

Question 9

Do considerations of culture have a place in the FCPA? Discuss in general and with respect to Hofstede's cultural values.

Accepted Answer

In FCPA enforcement, cultural norms are

Question 10

Assume a securities lawyer has just received a phone call from her client, the Chief Financial Officer (CFO) of XYZ Corporation, and informed that a securities lawsuit may be filed against her client by a group of the company's shareholders. XYZ's share price recently dropped from $40 to $4 per share after the company announced that it had to restate its quarterly results. The shareholders also learned that the CFOs compensation package ($20 million) is tied to the attainment of a $40 common stock share price. Although her client is innocent, the attorney believes the shareholders will view this as a case of securities fraud and file the suit against the CFO, alleging that due to the large compensation, the client stood to gain from reaching the share price, and with the client's ability to influence the company's revenue, the CFO possessed the motive and opportunity to defraud XYZ's investors.
Why might the facts of this case lead the attorney to conclude that a lawsuit against her client is imminent? How might the attorney assert a valid "good faith" defense?

Accepted Answer

The attorney probably believes the alleg

Question 11

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless:

Accepted Answer

A)  The management intentionally deceived the auditors 
B)  The damages were incurred to a third party that was not a signatory to the contract 
C)  The CPA can shift the burden of proof to the investors 
D)  The CPA rebuts the allegations 
A)  The management intentionally deceived the auditors 
B)  The damages were incurred to a third party that was not a signatory to the contract 
C)  The CPA can shift the burden of proof to the investors 
D)  The CPA rebuts the allegations

Question 12

In the Joker & Wild case, the main issue involves:

Accepted Answer

A)  The accounting manager's misappropriation of assets and writing down inventory for market declines to cover theft. 
B)  The accounting manager's violation of the law by taking improper accounting of tax advantaged investment. 
C)  Accelerating revenues to commit fraud. 
D)  Collusion between the auditors and company management. 
A)  The accounting manager's misappropriation of assets and writing down inventory for market declines to cover theft. 
B)  The accounting manager's violation of the law by taking improper accounting of tax advantaged investment. 
C)  Accelerating revenues to commit fraud. 
D)  Collusion between the auditors and company management.

Question 13

Auditors may be held liable to both their clients and third parties under common law.
a. What must a client prove to recover its losses from an auditor under common law?
b. What must a third party prove to recover losses from an auditor under common law?
c. How does an auditor's ethical obligations and liability under common law intersect?

Accepted Answer

a. A client has a privity relationship w

Question 14

The legal liability of the auditors in the Joker & Wild case can best be described as resulting from:

Accepted Answer

A)  Liability for gross negligence that constituted fraud 
B)  No liability because the auditor's performed their duties in accordance with GAAS 
C)  Liability for failing to assess current market values of inventory 
D)  Improper accounting for transactions involving management override 
A)  Liability for gross negligence that constituted fraud 
B)  No liability because the auditor's performed their duties in accordance with GAAS 
C)  Liability for failing to assess current market values of inventory 
D)  Improper accounting for transactions involving management override

Question 15

The section of SOX that requires management to prepare a report on its internal controls is:

Accepted Answer

A)  Section 302 
B)  Section 404 
C)  Section 808 
D)  Section 10A(b) 
A)  Section 302 
B)  Section 404 
C)  Section 808 
D)  Section 10A(b)

Question 16

One feature of a corporate governance system commonly found outside the U.S. is:

Accepted Answer

A)  Unitary board of directors 
B)  Dual system of boards of directors 
C)  No board of directors 
D)  Acceptance of facilitating payments and bribery 
A)  Unitary board of directors 
B)  Dual system of boards of directors 
C)  No board of directors 
D)  Acceptance of facilitating payments and bribery

Question 17

In the case of Phar-Mor v. Coopers & Lybrand the auditors were found guilty of fraud because

Accepted Answer

A)  The auditors did not follow the generally accepted auditing standards (GAAS) at the time 
B)  The independent audit of financial statements was not required at the time 
C)  The auditors were grossly negligent and had a blatant disregard for the truth 
D)  The auditors were not independent and conspired with management to steal funds 
A)  The auditors did not follow the generally accepted auditing standards (GAAS) at the time 
B)  The independent audit of financial statements was not required at the time 
C)  The auditors were grossly negligent and had a blatant disregard for the truth 
D)  The auditors were not independent and conspired with management to steal funds

Question 18

The report provided by PwC to Billy Muldoon, CFO, identified which material weaknesses?

Accepted Answer

A)  Inadequate controls over financial reporting 
B)  Related party transactions, impaired assets and off-balance sheet entities 
C)  Impaired assets, falsified bank account and facilitating payments 
D)  Fictitious revenue, contingent liabilities and facilitating payments 
A)  Inadequate controls over financial reporting 
B)  Related party transactions, impaired assets and off-balance sheet entities 
C)  Impaired assets, falsified bank account and facilitating payments 
D)  Fictitious revenue, contingent liabilities and facilitating payments

Question 19

The Private Securities Litigation Reform Act of 1995 applies the practice of ________ to auditor liability determinations.

Accepted Answer

A)  Risk assessment 
B)  Joint and several liability 
C)  Particularized standard 
D)  Proportionate liability 
A)  Risk assessment 
B)  Joint and several liability 
C)  Particularized standard 
D)  Proportionate liability

Question 20

Which of the following is NOT one of the four stages in an audit-related dispute?

Accepted Answer

A)  Events arise that create losses for the users of the financial statements 
B)  Losses are linked to material misstatements of financial statements 
C)  Legal process resolves the dispute 
D)  Auditors legal liability leads to financial settlement 
A)  Events arise that create losses for the users of the financial statements 
B)  Losses are linked to material misstatements of financial statements 
C)  Legal process resolves the dispute 
D)  Auditors legal liability leads to financial settlement

Which term means a person knew or should have known that their actions were likely to cause harm?

The problem of a compliance approach in implementing standards is that it can result in:

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

The term "true and fair view" tends to be a replacement for ________ used in the U.S.

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5?

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for:

An audit engagement letter:

The key element that protects an auditor against common law liability is:

Do considerations of culture have a place in the FCPA? Discuss in general and with respect to Hofstede's cultural values.

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless:

In the Joker & Wild case, the main issue involves:

The legal liability of the auditors in the Joker & Wild case can best be described as resulting from:

The section of SOX that requires management to prepare a report on its internal controls is:

One feature of a corporate governance system commonly found outside the U.S. is:

In the case of Phar-Mor v. Coopers & Lybrand the auditors were found guilty of fraud because

The report provided by PwC to Billy Muldoon, CFO, identified which material weaknesses?

The Private Securities Litigation Reform Act of 1995 applies the practice of ________ to auditor liability determinations.

Which of the following is NOT one of the four stages in an audit-related dispute?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management

Ethical Leadership and Decision-Making in Accounting

Filters

Exam 6: Legal, Regulatory, and Professional Obligations of Auditors

Which term means a person knew or should have known that their actions were likely to cause harm?

The problem of a compliance approach in implementing standards is that it can result in:

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

The term "true and fair view" tends to be a replacement for ________ used in the U.S.

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5?

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for:

An audit engagement letter:

The key element that protects an auditor against common law liability is:

Do considerations of culture have a place in the FCPA? Discuss in general and with respect to Hofstede's cultural values.

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless:

In the Joker & Wild case, the main issue involves:

The legal liability of the auditors in the Joker & Wild case can best be described as resulting from:

The section of SOX that requires management to prepare a report on its internal controls is:

One feature of a corporate governance system commonly found outside the U.S. is:

In the case of Phar-Mor v. Coopers & Lybrand the auditors were found guilty of fraud because

The report provided by PwC to Billy Muldoon, CFO, identified which material weaknesses?

The Private Securities Litigation Reform Act of 1995 applies the practice of ________ to auditor liability determinations.

Which of the following is NOT one of the four stages in an audit-related dispute?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management

Ethical Leadership and Decision-Making in Accounting

Filters