Question 1

Auditors may be liable to their clients if they are found guilty of:

Accepted Answer

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

Question 2

Audit risk is the risk there will be an audit failure for a given audit engagement.

Accepted Answer

A) True 
 B)False

Question 3

A group typically included as "third parties" in common law is:

Accepted Answer

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

Question 4

The preferred defense in third party suits is:

Accepted Answer

A) lack of duty to perform. 
B) nonnegligent performance. 
C) absence of causal connection. 
D) client fraud. 
A) lack of duty to perform. 
B) nonnegligent performance. 
C) absence of causal connection. 
D) client fraud.

Question 5

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 6

If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of:

Accepted Answer

A) contract fraud. 
B) breach of contract. 
C) constructive fraud. 
D) criminal neglect. 
A) contract fraud. 
B) breach of contract. 
C) constructive fraud. 
D) criminal neglect.

Question 7

Which of the following most accurately describes fraud?

Accepted Answer

A) Absence of reasonable care 
B) Lack of slight care 
C) Knowledge and intent to deceive 
D) Extreme or unusual negligence without the intent to deceive 
A) Absence of reasonable care 
B) Lack of slight care 
C) Knowledge and intent to deceive 
D) Extreme or unusual negligence without the intent to deceive

Question 8

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 9

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 10

The Securities and Exchange Commission can impose all but which of the following sanctions?

Accepted Answer

A) Suspend a CPA from auditing SEC clients. 
B) Prohibit a CPA from accepting new SEC clients for a period of time. 
C) Require a CPA to participate in continuing-education programs and make changes in their practice. 
D) Revoke a CPA license. 
A) Suspend a CPA from auditing SEC clients. 
B) Prohibit a CPA from accepting new SEC clients for a period of time. 
C) Require a CPA to participate in continuing-education programs and make changes in their practice. 
D) Revoke a CPA license.

Question 11

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 12

Although there is confusion caused by the differing views of liability to third parties under common law, the movement is clearly away from the foreseeable user approach.

Accepted Answer

A) True 
 B)False

Question 13

The partnership of Booth & Haynes, CPAs, has been engaged to examine the financial statements of Paul, Inc., in connection with the registration of Paul's securities with the Securities and Exchange Commission.Under these circumstances, which of the following statements is true?

Accepted Answer

A) Booth & Haynes is assuming much greater third-party liability than it assumes on engagements under common law. 
B) If its examination is not fraudulent, Booth & Haynes may issue an appropriate disclaimer to the financial statements and thereby avoid liability. 
C) Booth & Haynes must incorporate if they wish to practice before the SEC. 
D) Booth & Haynes must be a large interstate firm if they wish to practice before the SEC. 
A) Booth & Haynes is assuming much greater third-party liability than it assumes on engagements under common law. 
B) If its examination is not fraudulent, Booth & Haynes may issue an appropriate disclaimer to the financial statements and thereby avoid liability. 
C) Booth & Haynes must incorporate if they wish to practice before the SEC. 
D) Booth & Haynes must be a large interstate firm if they wish to practice before the SEC.

Question 14

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 15

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 16

Discuss each of the four defenses a CPA firm can normally use when facing legal claims by clients.Which of these defenses is ordinarily not available against third-party suits?

Accepted Answer

Lack of duty.The CPA firm claims that th

Question 17

An adequate system of internal control for SEC registrants was originally required by the:

Accepted Answer

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

Question 18

In which case were auditors prosecuted for filing false financial statements for a client with the government?

Accepted Answer

A) United States v.Natelli 
B) United States v.Simon 
C) Escott et al.v.Bar Chris 
D) ESM Government Securities v.Alexander Grant & Co. 
A) United States v.Natelli 
B) United States v.Simon 
C) Escott et al.v.Bar Chris 
D) ESM Government Securities v.Alexander Grant & Co.

Question 19

A common way for a CPA firm to demonstrate a lack of duty to perform is by use of a(n):

Accepted Answer

A) expert witness' testimony. 
B) engagement letter. 
C) management representation letter. 
D) confirmation letter. 
A) expert witness' testimony. 
B) engagement letter. 
C) management representation letter. 
D) confirmation letter.

Question 20

An individual who is not party to the contract between a CPA and the client, but who is known by both and is intended to receive certain benefits from the contract is known as:

Accepted Answer

A) a third party. 
B) a common law inheritor. 
C) a tort. 
D) a third-party beneficiary. 
A) a third party. 
B) a common law inheritor. 
C) a tort. 
D) a third-party beneficiary.

Exam 5: Legal Liability

Auditors may be liable to their clients if they are found guilty of:

Audit risk is the risk there will be an audit failure for a given audit engagement.

A group typically included as "third parties" in common law is:

The preferred defense in third party suits is:

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:

If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of:

Which of the following most accurately describes fraud?

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

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

The Securities and Exchange Commission can impose all but which of the following sanctions?

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.

Although there is confusion caused by the differing views of liability to third parties under common law, the movement is clearly away from the foreseeable user approach.

The partnership of Booth & Haynes, CPAs, has been engaged to examine the financial statements of Paul, Inc., in connection with the registration of Paul's securities with the Securities and Exchange Commission.Under these circumstances, which of the following statements is true?

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?

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:

Discuss each of the four defenses a CPA firm can normally use when facing legal claims by clients.Which of these defenses is ordinarily not available against third-party suits?

An adequate system of internal control for SEC registrants was originally required by the:

In which case were auditors prosecuted for filing false financial statements for a client with the government?

A common way for a CPA firm to demonstrate a lack of duty to perform is by use of a(n):

An individual who is not party to the contract between a CPA and the client, but who is known by both and is intended to receive certain benefits from the contract is known as:

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

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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