Question 1

It is not practical for users to evaluate the quality of the performance of most professional services because of their

Accepted Answer

A) complexity. 
B) legal standing. 
C) veracity. 
D) salaries and working conditions. 
A) complexity. 
B) legal standing. 
C) veracity. 
D) salaries and working conditions.

Question 2

What are the four sources of legal liability in assurance engagements? Give examples of potential claims or charges for these liabilities.

Accepted Answer

The four sources of legal liability in a

Question 3

If a PA firm provided corporate finance services to a company during the year,which of the following engagements could the PA firm accept to provide to the same company?

Accepted Answer

A) non-assurance services 
B) audit of listed entity 
C) audit of non-listed entity 
D) an assurance engagement other than an audit 
A) non-assurance services 
B) audit of listed entity 
C) audit of non-listed entity 
D) an assurance engagement other than an audit

Question 4

At a small practice where the bulk of the work is accounting,bookkeeping,and review engagements,what is an important procedure that should be followed by the PA to help ensure independence?

Accepted Answer

A) Management should be trained in accounting principles so that they can adequately assess the PAs work. 
B) All transactions should be prepared and processed by client personnel. 
C) Transactions and journal entries should be discussed with and approved by the client. 
D) The accountant should avoid doing bookkeeping for review engagements,and restrict this to compilation engagements only. 
A) Management should be trained in accounting principles so that they can adequately assess the PAs work. 
B) All transactions should be prepared and processed by client personnel. 
C) Transactions and journal entries should be discussed with and approved by the client. 
D) The accountant should avoid doing bookkeeping for review engagements,and restrict this to compilation engagements only.

Question 5

One reason for lawsuits against public accountants is

Accepted Answer

A) lack of awareness of the responsibilities of public accountants by users of financial statements. 
B) the increasing complexity of auditing and accounting functions. 
C) reduced consciousness on the part of provincial securities commissions of their responsibility for protecting investors' interests. 
D) many public accounting firms are not willing to settle legal problems. 
A) lack of awareness of the responsibilities of public accountants by users of financial statements. 
B) the increasing complexity of auditing and accounting functions. 
C) reduced consciousness on the part of provincial securities commissions of their responsibility for protecting investors' interests. 
D) many public accounting firms are not willing to settle legal problems.

Question 6

The King Surety Company wrote a general fidelity bond covering defalcations by the employees of Wilson,Inc.Thereafter,Cooney,an employee of Wilson,embezzled $17 200 of company funds.When the activities were discovered,King paid Wilson the full amount in accordance with the terms of the fidelity bond,and then sought recovery against Wilson's auditors,Lynch & Merritt,public accountants.Which of the following would be Lynch & Merritt's best defence?

Accepted Answer

A) King is not in privity of contract. 
B) The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards. 
C) Lynch & Merritt were not guilty of either negligence or fraud. 
D) Lynch & Merritt were not aware of the King-Wilson surety relationship. 
A) King is not in privity of contract. 
B) The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards. 
C) Lynch & Merritt were not guilty of either negligence or fraud. 
D) Lynch & Merritt were not aware of the King-Wilson surety relationship.

Question 7

The principal issue to be resolved in cases involving alleged negligence is usually

Accepted Answer

A) the amount of the damages suffered by the plaintiff. 
B) whether to impose punitive damages on the defendant. 
C) the level of care required. 
D) whether the defendant was involved in fraud. 
A) the amount of the damages suffered by the plaintiff. 
B) whether to impose punitive damages on the defendant. 
C) the level of care required. 
D) whether the defendant was involved in fraud.

Question 8

Pierre,a CPA,was convicted of stealing money from his clients and deliberately preparing personal tax returns that were false.In addition,Pierre will likely

Accepted Answer

A) need to take additional training courses to upgrade his tax skills. 
B) need to defend himself to prove non-negligent performance. 
C) have a suspension of designation or expulsion from the professional accounting body. 
D) have lack of privity with the federal and provincial tax authorities. 
A) need to take additional training courses to upgrade his tax skills. 
B) need to defend himself to prove non-negligent performance. 
C) have a suspension of designation or expulsion from the professional accounting body. 
D) have lack of privity with the federal and provincial tax authorities.

Question 9

According to the profession's ethical standards,an auditor would be considered independent in which of the following instances? The

Accepted Answer

A) auditor's chequing account,which is fully insured by CDIC,is held at a client financial institution. 
B) client comprises 75% of the auditor's fees. 
C) auditor does not have enough employees to meet the client's reporting deadline. 
D) client owes the auditor fees for two consecutive annual audits. 
A) auditor's chequing account,which is fully insured by CDIC,is held at a client financial institution. 
B) client comprises 75% of the auditor's fees. 
C) auditor does not have enough employees to meet the client's reporting deadline. 
D) client owes the auditor fees for two consecutive annual audits.

Question 10

Most of the major lawsuits against public accounting firms have dealt with

Accepted Answer

A) audited or unaudited financial statements. 
B) disputes over income-tax preparation services. 
C) disputes arising in the performance of management consulting services contracts. 
D) unaudited financial statements. 
A) audited or unaudited financial statements. 
B) disputes over income-tax preparation services. 
C) disputes arising in the performance of management consulting services contracts. 
D) unaudited financial statements.

Question 11

You are the auditor of Jehello Incorporated,a public company with a December year end.Your firm has audited Jehello for the past three years.The following issues were documented in the working paper files for the prior year audit:
•The company had incurred expenditures of $400 000 related to the development of a new sound system.The large majority of the costs were related to development of software,hardware,and presentation of the results to customers who participated in focus groups.Management had been optimistic that the new sound system would work well,even though focus group results had been poor.These costs had been fully capitalized.
•About 40% of the company's revenues were from one customer.That contract had been due for renewal on May 15,ten days after the audit report had been issued.Documents on file indicated that the customer seemed likely to renew the contract,although quality control disputes were escalating.On May 14,Jehello was informed that the contract would not be renewed.
Jehello has defaulted on its bank loans and the bank is suing you,saying that the financial statements presented last year were false and misleading.
Required:A)Which defences should the auditor use?

Accepted Answer

A)The auditor could argue lack of privit

Question 12

Which one of the following forms of advertisement would violate solicitation rules? PA

Accepted Answer

A) placed an advertisement in a newspaper indicating the opening of a new office. 
B) conducted a cold-calling campaign where companies were asked if they would like to change PA firms. 
C) placed a media advertisement listing the different types of expertise available at the firm's major office locations. 
D) conducted a survey asking companies about the types of services that are provided by their accounting firms. 
A) placed an advertisement in a newspaper indicating the opening of a new office. 
B) conducted a cold-calling campaign where companies were asked if they would like to change PA firms. 
C) placed a media advertisement listing the different types of expertise available at the firm's major office locations. 
D) conducted a survey asking companies about the types of services that are provided by their accounting firms.

Question 13

Financial statement users cannot be expected to evaluate audit performance because they will not have the time or the competence to do so.In such a situation,public confidence in the quality of professional services is enhanced when there are

Accepted Answer

A) only business majors hired to work as auditing students with public accounting firms. 
B) adequate controls at the public accounting firm to limit the amount of overtime worked. 
C) high standards of performance and conduct on the part of all practitioners. 
D) strict rules about the type of work that employees should complete on a daily basis. 
A) only business majors hired to work as auditing students with public accounting firms. 
B) adequate controls at the public accounting firm to limit the amount of overtime worked. 
C) high standards of performance and conduct on the part of all practitioners. 
D) strict rules about the type of work that employees should complete on a daily basis.

Question 14

Conflict between financial statement users and auditors often arises because of the

Accepted Answer

A) high cost of performing an audit. 
B) extremely technical vocabulary auditors use in their reports. 
C) placement of the auditor's report in the back of the client's annual report,where it is hard to locate. 
D) expectation gap. 
A) high cost of performing an audit. 
B) extremely technical vocabulary auditors use in their reports. 
C) placement of the auditor's report in the back of the client's annual report,where it is hard to locate. 
D) expectation gap.

Question 15

A common way for a public accounting firm to demonstrate its defence of a lack of duty to perform is by use of a(n)

Accepted Answer

A) engagement letter. 
B) letter of representation. 
C) confirmation letter. 
D) expert witness. 
A) engagement letter. 
B) letter of representation. 
C) confirmation letter. 
D) expert witness.

Question 16

Raul,PA,received a call from his friend Cristobal Franco.He needed an audit urgently,because the bank might call his loan for his computer store CF Ltd.Since Cristobal had been his high school friend and they still played soccer together every two weeks,Raul agreed.Raul and Cristobal had a quick meeting,where Raul fixed the audit fee at $10 000.Cristobal stressed the importance of an unqualified opinion for the bank.
Raul sent two available junior staff to CF's offices.The junior staff were experienced in review engagements,and had been working for Raul for about six months.The two staff had a quick look around the store,noting the documents strewn everywhere.The accounting staff came in and chatted briefly after their smoke break.They were about a month behind on recording transactions,because Cristobal had laid off one salesperson.The accounting staff also helped out with providing sales quotes and Cristobal did all of the technical work.
At the end of the day,the junior staff were each given a $250 gift certificate to be used in the computer store.This was great,because CF also sold MP3 players and supplies such as CDs and DVDs.
At dinner that night,the junior staff told their family that it would probably be a great idea to hold off on any computer supplies or equipment purchases that they needed,since CF would likely hold a sale in the next month or two to improve cash flow.
Required:
Identify and discuss the violations in the rules of conduct with respect to CF.

Accepted Answer

Raul is too familiar (familiarity threat

Question 17

An example of a breach of contract would be

Accepted Answer

A) a bank's claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan. 
B) an auditor's refusal to return a client's records until the client paid last year's audit fees. 
C) a public accounting firm's failure to deliver a tax return on the agreed-upon date because the firm had a backlog of other work that was more lucrative. 
D) an auditor's failure to complete the audit by the agreed-upon date because the client's financial records had been destroyed. 
A) a bank's claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan. 
B) an auditor's refusal to return a client's records until the client paid last year's audit fees. 
C) a public accounting firm's failure to deliver a tax return on the agreed-upon date because the firm had a backlog of other work that was more lucrative. 
D) an auditor's failure to complete the audit by the agreed-upon date because the client's financial records had been destroyed.

Question 18

To succeed in an action against the auditor,the client must be able to show that

Accepted Answer

A) the auditor was grossly negligent. 
B) the auditor was fraudulent. 
C) there is a close causal connection between the auditor's breach of the standard of due care and the damages suffered by the client. 
D) there was a written contract. 
A) the auditor was grossly negligent. 
B) the auditor was fraudulent. 
C) there is a close causal connection between the auditor's breach of the standard of due care and the damages suffered by the client. 
D) there was a written contract.

Question 19

Joan talked to the owners of Fancy Clothing Limited before investing.She obtained a copy of their financial statements and saw that profits were low,even considering the fact that the owners had not taken any money for themselves in the current year.However,she decided to invest in the company because she believed her superior knowledge of the clothing industry would turn the business around,resulting in enough profits for all owners.Unfortunately,this did not occur and the company went bankrupt.Joan is suing the auditors because she relied upon the financial statements during her investment decision.What is the auditor's best defence?

Accepted Answer

A) absence of misstatement 
B) contributory negligence 
C) non-negligent performance 
D) duty of care 
A) absence of misstatement 
B) contributory negligence 
C) non-negligent performance 
D) duty of care

Question 20

There are a number of things that the CPA,representing the profession as a whole,can do to reduce the practitioner's exposure to lawsuits.One of them is to

Accepted Answer

A) sanction members for improper conduct and performance. 
B) deal only with clients possessing integrity. 
C) hire qualified auditors and train and supervise them. 
D) perform quality audits. 
A) sanction members for improper conduct and performance. 
B) deal only with clients possessing integrity. 
C) hire qualified auditors and train and supervise them. 
D) perform quality audits.

It is not practical for users to evaluate the quality of the performance of most professional services because of their

What are the four sources of legal liability in assurance engagements? Give examples of potential claims or charges for these liabilities.

If a PA firm provided corporate finance services to a company during the year,which of the following engagements could the PA firm accept to provide to the same company?

At a small practice where the bulk of the work is accounting,bookkeeping,and review engagements,what is an important procedure that should be followed by the PA to help ensure independence?

One reason for lawsuits against public accountants is

The principal issue to be resolved in cases involving alleged negligence is usually

Pierre,a CPA,was convicted of stealing money from his clients and deliberately preparing personal tax returns that were false.In addition,Pierre will likely

According to the profession's ethical standards,an auditor would be considered independent in which of the following instances? The

Most of the major lawsuits against public accounting firms have dealt with

Which one of the following forms of advertisement would violate solicitation rules? PA

Financial statement users cannot be expected to evaluate audit performance because they will not have the time or the competence to do so.In such a situation,public confidence in the quality of professional services is enhanced when there are

Conflict between financial statement users and auditors often arises because of the

A common way for a public accounting firm to demonstrate its defence of a lack of duty to perform is by use of a(n)

An example of a breach of contract would be

To succeed in an action against the auditor,the client must be able to show that

There are a number of things that the CPA,representing the profession as a whole,can do to reduce the practitioner's exposure to lawsuits.One of them is to

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 3: Professional Ethics and Legal Liability

It is not practical for users to evaluate the quality of the performance of most professional services because of their

What are the four sources of legal liability in assurance engagements? Give examples of potential claims or charges for these liabilities.

If a PA firm provided corporate finance services to a company during the year,which of the following engagements could the PA firm accept to provide to the same company?

At a small practice where the bulk of the work is accounting,bookkeeping,and review engagements,what is an important procedure that should be followed by the PA to help ensure independence?

One reason for lawsuits against public accountants is

The principal issue to be resolved in cases involving alleged negligence is usually

Pierre,a CPA,was convicted of stealing money from his clients and deliberately preparing personal tax returns that were false.In addition,Pierre will likely

According to the profession's ethical standards,an auditor would be considered independent in which of the following instances? The

Most of the major lawsuits against public accounting firms have dealt with

Which one of the following forms of advertisement would violate solicitation rules? PA

Financial statement users cannot be expected to evaluate audit performance because they will not have the time or the competence to do so.In such a situation,public confidence in the quality of professional services is enhanced when there are

Conflict between financial statement users and auditors often arises because of the

A common way for a public accounting firm to demonstrate its defence of a lack of duty to perform is by use of a(n)

An example of a breach of contract would be

To succeed in an action against the auditor,the client must be able to show that

There are a number of things that the CPA,representing the profession as a whole,can do to reduce the practitioner's exposure to lawsuits.One of them is to

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters