Question 1

Manuel,in conducting an audit,must rely most heavily on rules found in generally accepted accounting principles (GAAP).

Accepted Answer

A) True 
 B)False

Question 2

In January,E-treme Inc.entered into an oral contract with Ralco,LLC,an accounting firm,for the preparation of its tax return.The contract is:

Accepted Answer

A)  unenforceable under the statute of frauds since it is not in writing. 
B)  unenforceable under the UCC since it is not in writing. 
C)  enforceable, but only up to a value of $10,000. 
D)  enforceable even though it is oral. 
A)  unenforceable under the statute of frauds since it is not in writing. 
B)  unenforceable under the UCC since it is not in writing. 
C)  enforceable, but only up to a value of $10,000. 
D)  enforceable even though it is oral.

Question 3

An auditor suspects its client is committing illegal acts that will have a material impact on its financial statements.What is the auditor legally required to do and under what circumstances would the auditor directly notify the SEC?

Accepted Answer

Under Section 10A of the 1934 Act,the au

Question 4

The Big Four accounting firms spend about what percentage of their revenue on litigation,including settlements and insurance?

Accepted Answer

A)  Less than five percent. 
B)  Between 10 and 20 percent. 
C)  About 25 percent. 
D)  Over 30 percent. 
A)  Less than five percent. 
B)  Between 10 and 20 percent. 
C)  About 25 percent. 
D)  Over 30 percent.

Question 5

One of the accountant's most important roles is to serve as an independent evaluator of the financial statements issued by management to investors and creditors.

Accepted Answer

A) True 
 B)False

Question 6

Sally prepared financial statements for MegaCorp knowing that the company would be using her statements when applying for a loan at Big Bank.It is discovered she was negligent in preparing the statements and Big Bank sued her.Sally is liable under the:

Accepted Answer

A)  Ultramares doctrine. 
B)  foreseeable doctrine. 
C)  Restatement doctrine. 
D)  All the above. 
A)  Ultramares doctrine. 
B)  foreseeable doctrine. 
C)  Restatement doctrine. 
D)  All the above.

Exam 27: Accountants' Liability

Manuel,in conducting an audit,must rely most heavily on rules found in generally accepted accounting principles (GAAP).

In January,E-treme Inc.entered into an oral contract with Ralco,LLC,an accounting firm,for the preparation of its tax return.The contract is:

An auditor suspects its client is committing illegal acts that will have a material impact on its financial statements.What is the auditor legally required to do and under what circumstances would the auditor directly notify the SEC?

The Big Four accounting firms spend about what percentage of their revenue on litigation,including settlements and insurance?

One of the accountant's most important roles is to serve as an independent evaluator of the financial statements issued by management to investors and creditors.

Sally prepared financial statements for MegaCorp knowing that the company would be using her statements when applying for a loan at Big Bank.It is discovered she was negligent in preparing the statements and Big Bank sued her.Sally is liable under the:

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