Question 1

It is clear from s.199A of the Corporations Act that auditors:

Accepted Answer

A)  can design clauses in letters of engagement to exempt or indemnify an auditor from or against any legal liability that would otherwise attach to the auditor. 
B)  have the defence of contributory negligence available to them. 
C)  cannot contract out of their duty to client companies. 
D)  all of the above 
A)  can design clauses in letters of engagement to exempt or indemnify an auditor from or against any legal liability that would otherwise attach to the auditor. 
B)  have the defence of contributory negligence available to them. 
C)  cannot contract out of their duty to client companies. 
D)  all of the above C

Question 2

The Financial Reporting Council (FRC):

Accepted Answer

A)  is the authority for producing auditing standards. 
B)  monitors individual auditors. 
C)  monitors individual engagements. 
D)  can seek information about disciplinary actions. 
A)  is the authority for producing auditing standards. 
B)  monitors individual auditors. 
C)  monitors individual engagements. 
D)  can seek information about disciplinary actions. A

Question 3

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

Accepted Answer

This statement, made in the judgement in the Kingston Cotton Mills case, refers to the auditor's duty to detect fraud and irregularities.It means that the auditor is not expected to track down every possible fraudulent activity or irregularity but, more reasonably, to act as a watchdog by planning an audit such that there is a reasonable expectation of detecting fraud and error.

Question 4

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Accepted Answer

A)  it is an implied part of the contract entered into by any professional and his or her client. 
B)  professional standards require it. 
C)  the criminal law of fraud requires it. 
D)  all of the above 
A)  it is an implied part of the contract entered into by any professional and his or her client. 
B)  professional standards require it. 
C)  the criminal law of fraud requires it. 
D)  all of the above

Question 5

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

Accepted Answer

A) True 
 B)False

Question 6

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Accepted Answer

A) True 
 B)False

Question 7

Liability to third parties is a contentious issue in auditing.

Accepted Answer

A) True 
 B)False

Question 8

In the AGC case, the court held the view that communication between AGC and the auditor:

Accepted Answer

A)  established proximity. 
B)  indicated that reliance was reasonable. 
C)  was evidence of a necessary special relationship. 
D)  did not bring about a relationship giving rise to a duty of care. 
A)  established proximity. 
B)  indicated that reliance was reasonable. 
C)  was evidence of a necessary special relationship. 
D)  did not bring about a relationship giving rise to a duty of care.

Question 9

Many of the major legal cases against public accountants have dealt with:

Accepted Answer

A)  disputes over income tax preparation services. 
B)  disputes arising in the performance of MAS contracts. 
C)  audited financial statements. 
D)  disputes over the accuracy of bookkeeping services. 
A)  disputes over income tax preparation services. 
B)  disputes arising in the performance of MAS contracts. 
C)  audited financial statements. 
D)  disputes over the accuracy of bookkeeping services.

Question 10

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

Accepted Answer

There are many steps individual practiti

Question 11

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Accepted Answer

A)  the auditor performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. 
B)  statistical sampling techniques were not used on the audit engagement. 
C)  the auditor planned the work in a hasty and inefficient manner. 
D)  the fraud was perpetrated by one trusted client employee, who circumvented the existing internal controls. 
A)  the auditor performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. 
B)  statistical sampling techniques were not used on the audit engagement. 
C)  the auditor planned the work in a hasty and inefficient manner. 
D)  the fraud was perpetrated by one trusted client employee, who circumvented the existing internal controls.

Question 12

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

Accepted Answer

A)  the audit report is out of date by the time of publication. 
B)  the auditor might be negligent. 
C)  an inappropriate audit opinion might be issued as a result of not complying with auditing standards. 
D)  an unqualified audit opinion might be issued when the financial statements are materially misstated. 
A)  the audit report is out of date by the time of publication. 
B)  the auditor might be negligent. 
C)  an inappropriate audit opinion might be issued as a result of not complying with auditing standards. 
D)  an unqualified audit opinion might be issued when the financial statements are materially misstated.

Question 13

The auditor's duty to inform management extends to nonmaterial irregularities.

Accepted Answer

A) True 
 B)False

Question 14

Auditing is highly regulated, subject to many regulatory influences, including:
1)professional bodies
2)stock exchanges
3)government regulatory agencies
4)state and federal legislation

Accepted Answer

A)  1, 2, & 4 
B)  1, 2, & 3 
C)  1, 3, & 4 
D)  1, 2, 3, & 4 
A)  1, 2, & 4 
B)  1, 2, & 3 
C)  1, 3, & 4 
D)  1, 2, 3, & 4

Question 15

A privity letter should NOT be provided:

Accepted Answer

A)  under any circumstances. 
B)  if the audit is being conducted under the Corporations Act. 
C)  if the third party seeking it fails to acknowledge in writing the potential inadequacy of the audit report for its purpose. 
D)  if reliance is foreseeable. 
A)  under any circumstances. 
B)  if the audit is being conducted under the Corporations Act. 
C)  if the third party seeking it fails to acknowledge in writing the potential inadequacy of the audit report for its purpose. 
D)  if reliance is foreseeable.

Question 16

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Accepted Answer

A)  Australia 
B)  England 
C)  Canada 
D)  United States 
A)  Australia 
B)  England 
C)  Canada 
D)  United States

Question 17

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Accepted Answer

A)  is an officer of the client company. 
B)  is an audit-critical employee of the client company. 
C)  has an investment in the company. 
D)  all of the above 
A)  is an officer of the client company. 
B)  is an audit-critical employee of the client company. 
C)  has an investment in the company. 
D)  all of the above

Question 18

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Accepted Answer

A)  other public accounting firms engaged to do part of the work. 
B)  employees of the public accounting firm. 
C)  employees of the client. 
D)  specialists called upon to provide technical information to the public accounting firm. 
A)  other public accounting firms engaged to do part of the work. 
B)  employees of the public accounting firm. 
C)  employees of the client. 
D)  specialists called upon to provide technical information to the public accounting firm.

Question 19

Which of the following is an illustration of auditor's liability to a client?

Accepted Answer

A)  Federal government prosecutes auditor for knowingly issuing an incorrect audit report. 
B)  Combined group of stockholders sue auditor for not discovering materially misstated financial statements. 
C)  Bank sues auditor for not discovering that borrower's financial statements are misstated. 
D)  Client sues auditor for not discovering a theft of assets by an employee. 
A)  Federal government prosecutes auditor for knowingly issuing an incorrect audit report. 
B)  Combined group of stockholders sue auditor for not discovering materially misstated financial statements. 
C)  Bank sues auditor for not discovering that borrower's financial statements are misstated. 
D)  Client sues auditor for not discovering a theft of assets by an employee.

Question 20

The Columbia Coffee and Tea judgement:

Accepted Answer

A)  sought to apply a common sense approach. 
B)  endorsed the judgement made in the AGC case. 
C)  was applied by the High Court in its Esanda decision. 
D)  all of the above 
A)  sought to apply a common sense approach. 
B)  endorsed the judgement made in the AGC case. 
C)  was applied by the High Court in its Esanda decision. 
D)  all of the above

It is clear from s.199A of the Corporations Act that auditors:

The Financial Reporting Council (FRC):

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Liability to third parties is a contentious issue in auditing.

In the AGC case, the court held the view that communication between AGC and the auditor:

Many of the major legal cases against public accountants have dealt with:

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

The auditor's duty to inform management extends to nonmaterial irregularities.

Auditing is highly regulated, subject to many regulatory influences, including: 1)professional bodies 2)stock exchanges 3)government regulatory agencies 4)state and federal legislation

A privity letter should NOT be provided:

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Which of the following is an illustration of auditor's liability to a client?

The Columbia Coffee and Tea judgement:

Demand for audit and assurance services

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters

Exam 2: Auditors’ legal environment

It is clear from s.199A of the Corporations Act that auditors:

The Financial Reporting Council (FRC):

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Liability to third parties is a contentious issue in auditing.

In the AGC case, the court held the view that communication between AGC and the auditor:

Many of the major legal cases against public accountants have dealt with:

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

The auditor's duty to inform management extends to nonmaterial irregularities.

Auditing is highly regulated, subject to many regulatory influences, including: 1)professional bodies 2)stock exchanges 3)government regulatory agencies 4)state and federal legislation

A privity letter should NOT be provided:

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Which of the following is an illustration of auditor's liability to a client?

The Columbia Coffee and Tea judgement:

Demand for audit and assurance services

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters