Question 1

The assessment against a defendant of that portion of the damage caused by the defendant's negligence is called

Accepted Answer

A) separate and proportionate liability. 
B) joint and several liability. 
C) shared liability. 
D) unitary liability. 
A) separate and proportionate liability. 
B) joint and several liability. 
C) shared liability. 
D) unitary liability. A

Question 2

Under the laws of agency,partners of a CPA firm may be liable for the work of others on whom they rely.This would not include

Accepted Answer

A) employees of the CPA firm. 
B) employees of the audit client. 
C) other CPA firms engaged to do part of the audit work. 
D) specialists employed by the CPA firm to provide technical advice on the audit. 
A) employees of the CPA firm. 
B) employees of the audit client. 
C) other CPA firms engaged to do part of the audit work. 
D) specialists employed by the CPA firm to provide technical advice on the audit. B

Question 3

The Credit Alliance approach to the concept of foreseen users states that to be liable to third parties,an auditor (1)must know and intend that the work product would be used by the third-party for a specific purpose,and (2)the knowledge and intent must be evidenced by the auditor's conduct.

Accepted Answer

A) True 
 B)False  True

Question 4

Define ordinary negligence,gross negligence,and constructive fraud.

Accepted Answer

Ordinary negligence is the absence of re

Question 5

Under common law,a foreseen user would be treated the same as

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 6

The Sarbanes-Oxley Act of 2002 makes it a felony to destroy or create documents to impede or obstruct a federal investigation.Those provisions were adopted following which of the following legal cases?

Accepted Answer

A) United States v.Natelli 
B) United States v.Andersen 
C) ESM Government Securities v.Alexander Grant & Co. 
D) United States v.Simon 
A) United States v.Natelli 
B) United States v.Andersen 
C) ESM Government Securities v.Alexander Grant & Co. 
D) United States v.Simon

Question 7

Under the Securities Exchange Act of 1934,most of the litigation against the auditor has been generated because of the auditor's involvement with the

Accepted Answer

A) 8-K form. 
B) 10-K form. 
C) 10-Q form. 
D) S-1 form. 
A) 8-K form. 
B) 10-K form. 
C) 10-Q form. 
D) S-1 form.

Question 8

Distinguish between "joint and several liability" and "separate and proportionate liability."

Accepted Answer

Under joint and several liability,the de

Question 9

The 2012 news of a massive alleged bribery scheme involving Wal-Mart has brought charges against the company under the

Accepted Answer

A) Securities Act of 1933. 
B) Securities Act of 1934. 
C) Foreign Corrupt Practices Act of 1977. 
D) Sarbanes-Oxley Act of 2002 
A) Securities Act of 1933. 
B) Securities Act of 1934. 
C) Foreign Corrupt Practices Act of 1977. 
D) Sarbanes-Oxley Act of 2002

Question 10

The principal issue in cases involving alleged negligence is usually

Accepted Answer

A) if an engagement letter was issued. 
B) the level of care required. 
C) if fraud was committed by upper-level management. 
D) whether the auditor is liable under civil or criminal laws. 
A) if an engagement letter was issued. 
B) the level of care required. 
C) if fraud was committed by upper-level management. 
D) whether the auditor is liable under civil or criminal laws.

Question 11

Which of the following is a True statement regarding auditors' liability?

Accepted Answer

A) The level of care is easy to determine in a review or compilation. 
B) Engagement letters will relieve the auditor of all liability. 
C) An auditor will always be guilty of negligence if they fail to uncover fraud. 
D) The most common source of lawsuits against CPAs is from clients. 
A) The level of care is easy to determine in a review or compilation. 
B) Engagement letters will relieve the auditor of all liability. 
C) An auditor will always be guilty of negligence if they fail to uncover fraud. 
D) The most common source of lawsuits against CPAs is from clients.

Question 12

Which of the following is an accurate statement regarding audit risk,audit failure,and business failure?

Accepted Answer

A) Audit risk is always avoidable if the audit is conducted in accordance with generally accepted auditing standards. 
B) Because auditors gather evidence on a test basis,and because well-concealed frauds are difficult to detect,audit risk is unavoidable. 
C) Legal precedent makes it easy to determine who has the right to recover losses in the event of an audit failure. 
D) A business failure will always result in an audit failure. 
A) Audit risk is always avoidable if the audit is conducted in accordance with generally accepted auditing standards. 
B) Because auditors gather evidence on a test basis,and because well-concealed frauds are difficult to detect,audit risk is unavoidable. 
C) Legal precedent makes it easy to determine who has the right to recover losses in the event of an audit failure. 
D) A business failure will always result in an audit failure.

Question 13

Tort actions against CPAs are more common than breach of contract actions because

Accepted Answer

A) there are more torts than contracts. 
B) the burden of proof is on the auditor rather than on the person suing. 
C) the person suing need prove only negligence. 
D) the amounts recoverable are normally larger. 
A) there are more torts than contracts. 
B) the burden of proof is on the auditor rather than on the person suing. 
C) the person suing need prove only negligence. 
D) the amounts recoverable are normally larger.

Question 14

The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the

Accepted Answer

A) prudent person concept. 
B) common law doctrine. 
C) constructive care concept. 
D) vigilant person concept. 
A) prudent person concept. 
B) common law doctrine. 
C) constructive care concept. 
D) vigilant person concept.

Question 15

One result from the Escott et al.v.BarChris case was a greater emphasis being placed on the audit staff's understanding of the client's business and industry.

Accepted Answer

A) True 
 B)False

Question 16

Match between columns
                        Premises: a federal statute that makes it illegal to offer a bribe to an official of a foreign country
an auditor's legal defense under which the auditor claims that the audit was performed in accordance with generally accepted auditing standards
a federal statute designed to significantly reduce the potential damages in federal securities-related litigation by providing for proportionate liability in most cases
a federal statute dealing with companies that trade securities on national and over-the-counter exchanges.Auditors are involved because the annual reporting requirements include audited financial statements.
a situation in which an incorrect audit opinion is issued because it failed to comply with the requirements of auditing standards
an auditor's legal defense under which the auditor claims that the client's own actions either resulted in the loss that is the basis for damages or interfered with the conduct of the audit in such a way that prevented the auditor from discovering the cause of the loss
an auditor's legal defense under which the auditor claims that the failure to follow auditing standards did not cause the damages suffered by the client
a common-law approach to third-party liability in which ordinary negligence is insufficient for liability to third parties,because of the lack of privity of contract between the third-party and the auditor unless the third-party is a primary beneficiary

Accepted Answer

The Answer of Securities Litigation Uniform Standards Act of 1998 is...

Question 17

The expectation gap

Accepted Answer

A) exists between the auditor and the SEC. 
B) exists because auditors guarantee the accuracy of the financial statements. 
C) often results in unwarranted lawsuits against the auditor. 
D) is a legal concept supported by the federal courts. 
A) exists between the auditor and the SEC. 
B) exists because auditors guarantee the accuracy of the financial statements. 
C) often results in unwarranted lawsuits against the auditor. 
D) is a legal concept supported by the federal courts.

Question 18

Three approaches to the application of the foreseen users' concept are (1)the Credit Alliance approach,(2)the Restatement of Torts approach,and (3)the foreseeable user approach.Summarize each of these three approaches.

Accepted Answer

The Credit Alliance approach upholds the

Question 19

The basic legal concept which was affirmed in the 1985 New York case,Credit Alliance,was that

Accepted Answer

A) the auditor's defense of privity of contract is still valid against third parties. 
B) the auditor is liable for ordinary negligence to specifically foreseen third parties. 
C) the auditor is liable for ordinary negligence to reasonably foreseeable third parties. 
D) the auditor's defense of contributory negligence is no longer valid. 
A) the auditor's defense of privity of contract is still valid against third parties. 
B) the auditor is liable for ordinary negligence to specifically foreseen third parties. 
C) the auditor is liable for ordinary negligence to reasonably foreseeable third parties. 
D) the auditor's defense of contributory negligence is no longer valid.

Question 20

In the auditing environment,failure to meet auditing standards is often

Accepted Answer

A) an accepted practice. 
B) a suggestion of negligence. 
C) conclusive evidence of negligence. 
D) tantamount to criminal behavior. 
A) an accepted practice. 
B) a suggestion of negligence. 
C) conclusive evidence of negligence. 
D) tantamount to criminal behavior.

Exam 5: Legal Liability

The assessment against a defendant of that portion of the damage caused by the defendant's negligence is called

Under the laws of agency,partners of a CPA firm may be liable for the work of others on whom they rely.This would not include

The Credit Alliance approach to the concept of foreseen users states that to be liable to third parties,an auditor (1)must know and intend that the work product would be used by the third-party for a specific purpose,and (2)the knowledge and intent must be evidenced by the auditor's conduct.

Define ordinary negligence,gross negligence,and constructive fraud.

Under common law,a foreseen user would be treated the same as

The Sarbanes-Oxley Act of 2002 makes it a felony to destroy or create documents to impede or obstruct a federal investigation.Those provisions were adopted following which of the following legal cases?

Under the Securities Exchange Act of 1934,most of the litigation against the auditor has been generated because of the auditor's involvement with the

Distinguish between "joint and several liability" and "separate and proportionate liability."

The 2012 news of a massive alleged bribery scheme involving Wal-Mart has brought charges against the company under the

The principal issue in cases involving alleged negligence is usually

Which of the following is a True statement regarding auditors' liability?

Which of the following is an accurate statement regarding audit risk,audit failure,and business failure?

Tort actions against CPAs are more common than breach of contract actions because

The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the

One result from the Escott et al.v.BarChris case was a greater emphasis being placed on the audit staff's understanding of the client's business and industry.

The expectation gap

Three approaches to the application of the foreseen users' concept are (1)the Credit Alliance approach,(2)the Restatement of Torts approach,and (3)the foreseeable user approach.Summarize each of these three approaches.

The basic legal concept which was affirmed in the 1985 New York case,Credit Alliance,was that

In the auditing environment,failure to meet auditing standards is often

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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