Question 1

The assessment against a defendant of the full loss suffered by a plaintiff regardless of the extent to which other parties shared in the wrongdoing is called

Accepted Answer

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

Question 2

The most significant audit issue that came as a result of the court decision in the Escott et al.v.BarChris Construction Corporation case in 1968 was

Accepted Answer

A) the court's reaffirmation that the burden of proof was on the plaintiff to prove the auditor was negligent. 
B) the affirmation of an increase in the auditor's responsibility when performing a review of events subsequent to the balance sheet date (S-1 review)for registration statements. 
C) the increased auditor responsibility when associated with unaudited financial statements. 
D) the court's refusal to allow the percentage-of-completion method of accounting for revenues. 
A) the court's reaffirmation that the burden of proof was on the plaintiff to prove the auditor was negligent. 
B) the affirmation of an increase in the auditor's responsibility when performing a review of events subsequent to the balance sheet date (S-1 review)for registration statements. 
C) the increased auditor responsibility when associated with unaudited financial statements. 
D) the court's refusal to allow the percentage-of-completion method of accounting for revenues.

Question 3

The laws that have been developed through court decisions are called

Accepted Answer

A) common laws. 
B) criminal laws. 
C) statutory laws. 
D) civil laws. 
A) common laws. 
B) criminal laws. 
C) statutory laws. 
D) civil laws.

Question 4

A broad interpretation of the rights of third-party beneficiaries holds that users the auditor should have been able to foresee as being likely users of financial statements have the same rights as those with privity of contract.This is known as the concept of

Accepted Answer

A) foreseen users. 
B) foreseeable users. 
C) expected users. 
D) four-party contracts. 
A) foreseen users. 
B) foreseeable users. 
C) expected users. 
D) four-party contracts.

Question 5

Under the Securities Act of 1933,a third party plaintiff does not have the burden of proof that he or she relied on the financial statements or that the auditor was negligent or fraudulent in doing the audit.Rather,the plaintiff need only prove that the audited financial statements contained a material misrepresentation or omission.

Accepted Answer

A) True 
 B)False

Question 6

The legal term for when an auditor issues an audit opinion,knowing that an adequate audit was not performed,is a

Accepted Answer

A) breach of contract. 
B) tort action for negligence. 
C) constructive fraud. 
D) fraud. 
A) breach of contract. 
B) tort action for negligence. 
C) constructive fraud. 
D) fraud.

Question 7

Discuss the sanctions the Securities and Exchange Commission can impose on auditors.

Accepted Answer

The SEC has the power in certain circums

Question 8

Which of the auditor's defenses against client suits contends no implied or expressed contract?

Accepted Answer

A) lack of duty 
B) non-negligent performance 
C) contributory negligence 
D) absence of causal connections 
A) lack of duty 
B) non-negligent performance 
C) contributory negligence 
D) absence of causal connections

Question 9

A CPA is subject to criminal liability if the CPA

Accepted Answer

A) refuses to turn over requested audit documentation to a client. 
B) performs an audit in a negligent manner. 
C) is knowingly involved with false financial statements. 
D) willfully breaches a contract with a client. 
A) refuses to turn over requested audit documentation to a client. 
B) performs an audit in a negligent manner. 
C) is knowingly involved with false financial statements. 
D) willfully breaches a contract with a client.

Question 10

Discuss at least 3 steps the AICPA and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.

Accepted Answer

Steps the profession is taking to reduce

Question 11

"Absence of reasonable care that can be expected of a person in a set of circumstances" defines

Accepted Answer

A) pecuniary negligence. 
B) gross negligence. 
C) extreme negligence. 
D) ordinary negligence. 
A) pecuniary negligence. 
B) gross negligence. 
C) extreme negligence. 
D) ordinary negligence.

Question 12

Fraud occurs when

Accepted Answer

A) a misstatement is made and there is both knowledge of its falsity and the intent to deceive. 
B) a misstatement is made and there is knowledge of its falsity but no intent to deceive. 
C) the auditor lacks even slight care in the performance in performing the audit. 
D) the auditor has an absence of reasonable care in the performance of the audit. 
A) a misstatement is made and there is both knowledge of its falsity and the intent to deceive. 
B) a misstatement is made and there is knowledge of its falsity but no intent to deceive. 
C) the auditor lacks even slight care in the performance in performing the audit. 
D) the auditor has an absence of reasonable care in the performance of the audit.

Question 13

In a CPA firm operating as a limited liability partnership (LLP),the liability for one partner's actions extends to the firm's assets.

Accepted Answer

A) True 
 B)False

Question 14

The Sarbanes-Oxley Act of 2002 makes destruction of audit documentation punishable by up to 10 years in prison.

Accepted Answer

A) True 
 B)False

Question 15

The broadest interpretation of the right of third-party beneficiaries is the primary user concept.

Accepted Answer

A) True 
 B)False

Question 16

When an auditor has failed to conduct an adequate audit,liability may depend on the level of negligence.

Accepted Answer

A) True 
 B)False

Question 17

In a CPA firm operating as a limited liability partnership (LLP),the liability for one partner's actions does not extend to another partner's personal assets.

Accepted Answer

A) True 
 B)False

Question 18

The 1136 Tenants case was a criminal case concerning a CPA's failure to uncover fraud during a financial statement audit.

Accepted Answer

A) True 
 B)False

Question 19

Statutory laws are laws that have been developed through court decisions rather than through the U.S.Congress and other governmental units.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an illustration of liability to clients under common law?

Accepted Answer

A) A client sues the auditor for not discovering a theft of assets by an employee. 
B) A bank sues the auditor for not discovering that the borrower's financial statements are misstated. 
C) A combined group of stockholders sues the auditor for not discovering materially misstated financial statements. 
D) The federal government prosecutes the auditor for knowingly issuing an incorrect audit report. 
A) A client sues the auditor for not discovering a theft of assets by an employee. 
B) A bank sues the auditor for not discovering that the borrower's financial statements are misstated. 
C) A combined group of stockholders sues the auditor for not discovering materially misstated financial statements. 
D) The federal government prosecutes the auditor for knowingly issuing an incorrect audit report.

Exam 5: Legal Liability

The assessment against a defendant of the full loss suffered by a plaintiff regardless of the extent to which other parties shared in the wrongdoing is called

The most significant audit issue that came as a result of the court decision in the Escott et al.v.BarChris Construction Corporation case in 1968 was

The laws that have been developed through court decisions are called

A broad interpretation of the rights of third-party beneficiaries holds that users the auditor should have been able to foresee as being likely users of financial statements have the same rights as those with privity of contract.This is known as the concept of

The legal term for when an auditor issues an audit opinion,knowing that an adequate audit was not performed,is a

Discuss the sanctions the Securities and Exchange Commission can impose on auditors.

Which of the auditor's defenses against client suits contends no implied or expressed contract?

A CPA is subject to criminal liability if the CPA

Discuss at least 3 steps the AICPA and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.

"Absence of reasonable care that can be expected of a person in a set of circumstances" defines

Fraud occurs when

In a CPA firm operating as a limited liability partnership (LLP),the liability for one partner's actions extends to the firm's assets.

The Sarbanes-Oxley Act of 2002 makes destruction of audit documentation punishable by up to 10 years in prison.

The broadest interpretation of the right of third-party beneficiaries is the primary user concept.

When an auditor has failed to conduct an adequate audit,liability may depend on the level of negligence.

In a CPA firm operating as a limited liability partnership (LLP),the liability for one partner's actions does not extend to another partner's personal assets.

The 1136 Tenants case was a criminal case concerning a CPA's failure to uncover fraud during a financial statement audit.

Statutory laws are laws that have been developed through court decisions rather than through the U.S.Congress and other governmental units.

Which of the following is an illustration of liability to clients under common law?

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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