Question 1

Auditor liability under the 1933 Securities Act extends to the:

Accepted Answer

A)  financial statement date. 
B)  auditor's report date. 
C)  filing date of the registration statement. 
D)  effective date of the registration statement. 
E)  due date of the registration statement. 
A)  financial statement date. 
B)  auditor's report date. 
C)  filing date of the registration statement. 
D)  effective date of the registration statement. 
E)  due date of the registration statement. D

Question 2

The Hochfelder Case is important because it limited auditor liability under:

Accepted Answer

A)  the 1933 Securities Act. 
B)  the 1934 Securities Exchange Act. 
C)  common law. 
D)  RICO. 
E)  tort law. 
A)  the 1933 Securities Act. 
B)  the 1934 Securities Exchange Act. 
C)  common law. 
D)  RICO. 
E)  tort law. B

Question 3

The term privity of contract refers to the contractual relationship that exists between two or more contracting parties.

Accepted Answer

A) True 
 B)False  True

Question 4

Strict adherence to Statements on Auditing Standards is not required.

Accepted Answer

A) True 
 B)False

Question 5

When financial statements are determined to be false or misleading, the auditor's best defense against a plaintiff bringing suit under the 1933 Securities Act would be:

Accepted Answer

A)  lack of intent. 
B)  lack of privity. 
C)  contributory negligence. 
D)  no contest. 
E)  due diligence. 
A)  lack of intent. 
B)  lack of privity. 
C)  contributory negligence. 
D)  no contest. 
E)  due diligence.

Question 6

In recent years, both the volume and cost of litigation related to alleged audit deficiencies reached alarming proportions. This important trend led to the:

Accepted Answer

A)  Racketeer Influenced and Corrupt Organization Act. 
B)  Coalition to Eliminate Abusive Securities Suits. 
C)  Securities Act of 1993. 
D)  Private Securities Litigation Reform Act of 1995. 
E)  Securities Exchange Act of 1994. 
A)  Racketeer Influenced and Corrupt Organization Act. 
B)  Coalition to Eliminate Abusive Securities Suits. 
C)  Securities Act of 1993. 
D)  Private Securities Litigation Reform Act of 1995. 
E)  Securities Exchange Act of 1994.

Question 7

When using the due care defense in a suit pertaining to an audit engagement, the auditor attempts to show that the audit was made in accordance with GAAP.

Accepted Answer

A) True 
 B)False

Question 8

Engagement letters provide the basis for the contractual agreements and maximize the risk of misunderstanding about the services that have been agreed on.

Accepted Answer

A) True 
 B)False

Question 9

If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:

Accepted Answer

A)  fraudulent misconduct. 
B)  gross misconduct. 
C)  ordinary negligence. 
D)  contributory negligence. 
E)  gross negligence. 
A)  fraudulent misconduct. 
B)  gross misconduct. 
C)  ordinary negligence. 
D)  contributory negligence. 
E)  gross negligence.

Question 10

Consider the following three situations: X, Y, and Z. 
X:Company X has had securities traded on the NYSE for many years.
Y:Company Y is preparing to have its securities traded on an organized national exchange for the first time.
Z:Company Z is preparing an initial public offering through the mails.
The 1934 Securities Exchange Act would apply to:

Accepted Answer

A)  situation X only. 
B)  situations Y and Z. 
C)  situation Z only. 
D)  situations X, Y, and Z. 
E)  situations X and Y. 
A)  situation X only. 
B)  situations Y and Z. 
C)  situation Z only. 
D)  situations X, Y, and Z. 
E)  situations X and Y.

Question 11

Explain why there is such a misconception as to the number of audit failures relative to the total number of audits performed.

Accepted Answer

The reality is that there are very few a

Question 12

Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:

Accepted Answer

A)  client's intent to distribute the financial statements. 
B)  names or identities of the expected users. 
C)  type of transaction the information is to be used to support. 
D)  fact that the client's management created fictitious transactions. 
E)  fact that the client's management had knowledge of material misrepresentations in the financial statements. 
A)  client's intent to distribute the financial statements. 
B)  names or identities of the expected users. 
C)  type of transaction the information is to be used to support. 
D)  fact that the client's management created fictitious transactions. 
E)  fact that the client's management had knowledge of material misrepresentations in the financial statements.

Question 13

Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The Act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow's CPAs, performed the annual audit for the year ended December 31, 200X, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow's financial statements. During 200x Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the shareholders of Whitlow & Company, including Thaxton who had recently purchased several shares of stock of Whitlow & Company after reviewing the company's 200x audit report. Thaxton sues Mitchell & Moss for negligence but admits that the accountants had no knowledge of the fraud.
REQUIRED: What liability to Thaxton, if any, does Mitchell & Moss have under the Securities Exchange Act of 1934?

Accepted Answer

In order for Thaxton to hold Mitchell &

Question 14

Under the Rusch Factors ruling, in order for parties to recover for ordinary negligence they must be:

Accepted Answer

A)  in privity. 
B)  named in the contract. 
C)  foreseeable. 
D)  members of a foreseen group. 
E)  secondary beneficiaries. 
A)  in privity. 
B)  named in the contract. 
C)  foreseeable. 
D)  members of a foreseen group. 
E)  secondary beneficiaries.

Question 15

Based upon the Hochfelder case, scienter is now required for auditor liability under Section 10 of the 1934 Securities Exchange Act.

Accepted Answer

A) True 
 B)False

Question 16

Consider the following three situations: X, Y, and Z. X:Company X has had securities traded on the NYSE for many years.
Y:Company Y is preparing to have its securities traded on an organized national exchange for the first time.
Z:Company Z is preparing an initial public offering through the mails.
The 1933 Securities Act would apply to:

Accepted Answer

A)  situation X only. 
B)  situations Y and Z. 
C)  situation Z only. 
D)  situations X, Y, and Z. 
E)  situations X and Y. 
A)  situation X only. 
B)  situations Y and Z. 
C)  situation Z only. 
D)  situations X, Y, and Z. 
E)  situations X and Y.

Question 17

Individuals or entities whom the auditor either knew or should have known would rely on the audit report in making business and investment decisions are:

Accepted Answer

A)  third parties. 
B)  foreseen beneficiaries. 
C)  primary beneficiaries. 
D)  secondary beneficiaries. 
E)  foreseeable parties. 
A)  third parties. 
B)  foreseen beneficiaries. 
C)  primary beneficiaries. 
D)  secondary beneficiaries. 
E)  foreseeable parties.

Question 18

Lawsuits against auditors under the 1934 Act are normally based on Section 18(b).

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a tort?

Accepted Answer

A)  breach of contract 
B)  negligence 
C)  gross negligence 
D)  fraud 
E)  ordinary negligence 
A)  breach of contract 
B)  negligence 
C)  gross negligence 
D)  fraud 
E)  ordinary negligence

Question 20

Which one of the following grants certain unnamed third parties rights against auditors for ordinary negligence?

Accepted Answer

A)  the Private Securities Litigation Reform Act of 1995 
B)  the Securities Act of 1933 
C)  the Securities Exchange Act of 1934 
D)  both the 1933 and 1934 Acts 
E)  the Organized Crime Control Act of 1970 
A)  the Private Securities Litigation Reform Act of 1995 
B)  the Securities Act of 1933 
C)  the Securities Exchange Act of 1934 
D)  both the 1933 and 1934 Acts 
E)  the Organized Crime Control Act of 1970

Auditor liability under the 1933 Securities Act extends to the:

The Hochfelder Case is important because it limited auditor liability under:

The term privity of contract refers to the contractual relationship that exists between two or more contracting parties.

Strict adherence to Statements on Auditing Standards is not required.

When financial statements are determined to be false or misleading, the auditor's best defense against a plaintiff bringing suit under the 1933 Securities Act would be:

In recent years, both the volume and cost of litigation related to alleged audit deficiencies reached alarming proportions. This important trend led to the:

When using the due care defense in a suit pertaining to an audit engagement, the auditor attempts to show that the audit was made in accordance with GAAP.

Engagement letters provide the basis for the contractual agreements and maximize the risk of misunderstanding about the services that have been agreed on.

If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:

Explain why there is such a misconception as to the number of audit failures relative to the total number of audits performed.

Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:

Under the Rusch Factors ruling, in order for parties to recover for ordinary negligence they must be:

Based upon the Hochfelder case, scienter is now required for auditor liability under Section 10 of the 1934 Securities Exchange Act.

Individuals or entities whom the auditor either knew or should have known would rely on the audit report in making business and investment decisions are:

Lawsuits against auditors under the 1934 Act are normally based on Section 18(b).

Which of the following is not a tort?

Which one of the following grants certain unnamed third parties rights against auditors for ordinary negligence?

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters

Exam 4: Auditors Legal Liability

Auditor liability under the 1933 Securities Act extends to the:

The Hochfelder Case is important because it limited auditor liability under:

The term privity of contract refers to the contractual relationship that exists between two or more contracting parties.

Strict adherence to Statements on Auditing Standards is not required.

When financial statements are determined to be false or misleading, the auditor's best defense against a plaintiff bringing suit under the 1933 Securities Act would be:

In recent years, both the volume and cost of litigation related to alleged audit deficiencies reached alarming proportions. This important trend led to the:

When using the due care defense in a suit pertaining to an audit engagement, the auditor attempts to show that the audit was made in accordance with GAAP.

Engagement letters provide the basis for the contractual agreements and maximize the risk of misunderstanding about the services that have been agreed on.

If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:

Explain why there is such a misconception as to the number of audit failures relative to the total number of audits performed.

Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:

Under the Rusch Factors ruling, in order for parties to recover for ordinary negligence they must be:

Based upon the Hochfelder case, scienter is now required for auditor liability under Section 10 of the 1934 Securities Exchange Act.

Individuals or entities whom the auditor either knew or should have known would rely on the audit report in making business and investment decisions are:

Lawsuits against auditors under the 1934 Act are normally based on Section 18(b).

Which of the following is not a tort?

Which one of the following grants certain unnamed third parties rights against auditors for ordinary negligence?

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters