Question 1

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Accepted Answer

A) True 
 B)False  True

Question 2

Third-party plaintiffs bringing action under common law need not prove

Accepted Answer

A) They were damaged or suffered a loss. 
B) Reliance on the financial statements. 
C) The financial statements were direct cause of loss. 
D) Breach of contract. 
A) They were damaged or suffered a loss. 
B) Reliance on the financial statements. 
C) The financial statements were direct cause of loss. 
D) Breach of contract. D

Question 3

Foreseeable third parties are best described as

Accepted Answer

A) Management of the company. 
B) Those that have direct involvement through a contract. 
C) Those third parties who will rely on the audit and are specifically known by the auditor. 
D) Those third parties who potentially will rely on the audit but are not specifically known by the auditor. 
A) Management of the company. 
B) Those that have direct involvement through a contract. 
C) Those third parties who will rely on the audit and are specifically known by the auditor. 
D) Those third parties who potentially will rely on the audit but are not specifically known by the auditor. D

Question 4

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Accepted Answer

A) True 
 B)False

Question 5

Accountants are not subject to prosecution under Bill C-22, known informally as the
"proceeds of crime" legislation.

Accepted Answer

A) True 
 B)False

Question 6

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Accepted Answer

A) True 
 B)False

Question 7

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not an element of a successful negligence action against auditors?

Accepted Answer

A) There must be proof that damage resulted. 
B) The plaintiff must be a known user of the financial statements. 
C) There must be a legal duty of care to the plaintiff. 
D) There must be a reasonable connection between the breach of duty of care and resulting losses. 
A) There must be proof that damage resulted. 
B) The plaintiff must be a known user of the financial statements. 
C) There must be a legal duty of care to the plaintiff. 
D) There must be a reasonable connection between the breach of duty of care and resulting losses.

Question 9

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Accepted Answer

A) True 
 B)False

Question 10

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Accepted Answer

A) True 
 B)False

Question 11

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

Accepted Answer

A) Is the client's creditor who sues the accountant for negligence. 
B) Can prove the presence of gross negligence that amounts to a reckless disregard for the truth. 
C) Is the accountant's client. 
D) Bases the action upon fraud. 
A) Is the client's creditor who sues the accountant for negligence. 
B) Can prove the presence of gross negligence that amounts to a reckless disregard for the truth. 
C) Is the accountant's client. 
D) Bases the action upon fraud.

Question 12

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

Accepted Answer

A) Dupuis v.Pan American Mines. 
B) Hedley Byrne & Co.Ltd.V.Heller & Partners Ltd. 
C) Caparo Industries PLC v.Pickman et al. 
D) Haig v.Bamford et al. 
A) Dupuis v.Pan American Mines. 
B) Hedley Byrne & Co.Ltd.V.Heller & Partners Ltd. 
C) Caparo Industries PLC v.Pickman et al. 
D) Haig v.Bamford et al.

Question 13

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

Accepted Answer

A) A contract relationship exists between an accountant acting as a fiduciary and a client. 
B) An accountant acting as fiduciary owed a duty of care to the client. 
C) An accountant acting as fiduciary has scope for the exercise of some discretion or power. 
D) An accountant acting as fiduciary is required to issue a report. 
A) A contract relationship exists between an accountant acting as a fiduciary and a client. 
B) An accountant acting as fiduciary owed a duty of care to the client. 
C) An accountant acting as fiduciary has scope for the exercise of some discretion or power. 
D) An accountant acting as fiduciary is required to issue a report.

Question 14

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

Accepted Answer

A) Third parties with privity and contracted parties. 
B) Any party that suffered a loss. 
C) Shareholders only. 
D) All parties with privity. 
A) Third parties with privity and contracted parties. 
B) Any party that suffered a loss. 
C) Shareholders only. 
D) All parties with privity.

Question 15

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Accepted Answer

A) If the purchaser is guilty of contributory negligence. 
B) If the CA can prove due care in the audit. 
C) Unless the purchaser can prove privity with the CA. 
D) Unless the purchaser can prove scienter on the part of the CA. 
A) If the purchaser is guilty of contributory negligence. 
B) If the CA can prove due care in the audit. 
C) Unless the purchaser can prove privity with the CA. 
D) Unless the purchaser can prove scienter on the part of the CA.

Question 16

Who would be considered a reasonably foreseeable third party for an auditor?

Accepted Answer

A reasonably foreseeable third party wou

Question 17

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Accepted Answer

There existed a legal duty of care to th

Question 18

Beckler & Associates CAs issued an unqualified opinion on the financial statements of Queen Ltd.The financial statements contained misstatements that resulted in a material overstatement of Queen's net worth.Queen provided the audited financial statements to Mac Bank in connection with a loan made by Mac to Queen.Beckler knew that the financial statements would be provided to Mac.Queen defaulted on the loan.Mac sued Beckler to recover the losses associated with Queen's default.Which of the following must Mac prove in order to recover?
I.Beckler was negligent in conducting the audit.
II.Mac relied on the financial statements.

Accepted Answer

A) I only. 
B) II only. 
C) Both I and II. 
D) Neither I nor II. 
A) I only. 
B) II only. 
C) Both I and II. 
D) Neither I nor II.

Question 19

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Accepted Answer

A) The recipient of funds when someone dies. 
B) A party for whose benefit the audit or service is being performed. 
C) The client. 
D) The shareholders of the company. 
A) The recipient of funds when someone dies. 
B) A party for whose benefit the audit or service is being performed. 
C) The client. 
D) The shareholders of the company.

Question 20

While conducting an audit, Larson & Larson Chartered Accountants failed to detect a material misstatement in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a 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.Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities?

Accepted Answer

A) The purchaser must prove that Larson was negligent in conducting the audit. 
B) The purchaser must prove that Larson knew of the material misstatements. 
C) Larson will not be liable if they had reasonable grounds to believe the financial statements were accurate. 
D) Larson will be liable unless the purchaser did not rely on the financial statements. 
A) The purchaser must prove that Larson was negligent in conducting the audit. 
B) The purchaser must prove that Larson knew of the material misstatements. 
C) Larson will not be liable if they had reasonable grounds to believe the financial statements were accurate. 
D) Larson will be liable unless the purchaser did not rely on the financial statements.

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Third-party plaintiffs bringing action under common law need not prove

Foreseeable third parties are best described as

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Accountants are not subject to prosecution under Bill C-22, known informally as the "proceeds of crime" legislation.

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Which of the following is not an element of a successful negligence action against auditors?

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Who would be considered a reasonably foreseeable third party for an auditor?

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

Filters

Exam 5: Legal Liability

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Third-party plaintiffs bringing action under common law need not prove

Foreseeable third parties are best described as

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Accountants are not subject to prosecution under Bill C-22, known informally as the "proceeds of crime" legislation.

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Which of the following is not an element of a successful negligence action against auditors?

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Who would be considered a reasonably foreseeable third party for an auditor?

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

Filters