Question 1

The only parties who can recover from auditors under the Securities Act of 1933 are original purchasers of securities.

Accepted Answer

A) True 
 B)False

Question 2

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 3

The term "audit failure" refers to the situation when the auditor issues an incorrect audit opinion that a qualified auditor, following auditing standards, would have not issued.

Accepted Answer

A) True 
 B)False

Question 4

In the case of an audit, recklessness is present if the auditor knew an adequate audit was not done but still issued an opinion, even though there was no intent to deceive financial statement users. This is a description of the legal term

Accepted Answer

A)  ordinary negligence. 
B)  gross negligence. 
C)  constructive fraud. 
D)  fraud. 
A)  ordinary negligence. 
B)  gross negligence. 
C)  constructive fraud. 
D)  fraud.

Question 5

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

Accepted Answer

Under joint and several liability, the d

Question 6

The Foreign Corrupt Practices Act (FCPA) of 1977

Accepted Answer

A)  requires auditors to review and evaluate systems of internal control as a part of an audit. 
B)  requires SEC registrants to maintain a reasonably complete and accurate set of records and an adequate system of internal control. 
C)  requires auditors to review client's internal control system in a manner which is thorough enough to judge whether client meets the requirements of the FCPA. 
D)  requires auditors to file a report with the SEC if client's internal control system is inadequate. 
A)  requires auditors to review and evaluate systems of internal control as a part of an audit. 
B)  requires SEC registrants to maintain a reasonably complete and accurate set of records and an adequate system of internal control. 
C)  requires auditors to review client's internal control system in a manner which is thorough enough to judge whether client meets the requirements of the FCPA. 
D)  requires auditors to file a report with the SEC if client's internal control system is inadequate.

Question 7

Match between columns
                        Premises: an auditor's legal defense under which the auditor claims that the audit was performed in accordance with generally accepted auditing standards
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
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 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
a federal statute designed to significantly reduce the potential damages in federal securities-related litigation by providing for proportionate liability in most cases
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 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

Accepted Answer

The Answer of Securities Exchange Act of 1934 and Securities is...

Question 8

"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 9

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 10

Which of the following is a true statement regarding CPAs' liability?

Accepted Answer

A)  The amounts assessed under joint and several liability will not differ significantly from the amounts assessed under separate and proportionate liability. 
B)  When lawsuits are brought under the federal securities laws, the joint and several liability approach will always apply. 
C)  If one owner was directly involved in the actions of the owner causing the liability, the personal assets of neither owner can be subject to the damages that arise. 
D)  Under the federal statutes, the amount of damages under separate and proportionate liability can be increased if the main defendant is insolvent. 
A)  The amounts assessed under joint and several liability will not differ significantly from the amounts assessed under separate and proportionate liability. 
B)  When lawsuits are brought under the federal securities laws, the joint and several liability approach will always apply. 
C)  If one owner was directly involved in the actions of the owner causing the liability, the personal assets of neither owner can be subject to the damages that arise. 
D)  Under the federal statutes, the amount of damages under separate and proportionate liability can be increased if the main defendant is insolvent.

Question 11

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 12

Define ordinary negligence, gross negligence, and constructive fraud.

Accepted Answer

Ordinary negligence is the absence of re

Question 13

The auditor generally owes a duty of care to third parties who are part of a limited group of persons whose reliance is "foreseen" by the auditor.

Accepted Answer

A) True 
 B)False

Question 14

Under the Securities Exchange Act of 1934, which type of organization is required to submit audited financial statements to the SEC?

Accepted Answer

A)  every company with securities traded on national and over-the-counter exchanges 
B)  every corporation 
C)  every company issuing new securities 
D)  every corporation which is chartered by a state government 
A)  every company with securities traded on national and over-the-counter exchanges 
B)  every corporation 
C)  every company issuing new securities 
D)  every corporation which is chartered by a state government

Question 15

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 16

Which of the following auditor's defenses usually means nonreliance on the financial statements by the user?

Accepted Answer

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

Question 17

Discuss at least three major factors that have contributed to the recent increase in the number of lawsuits against auditors and the size of awards to plaintiffs.

Accepted Answer

Major factors include:
• The growing awa

Question 18

Match between columns
                        Premises: absence of reasonable care that can be expected of a person in a set of circumstances
existence of extreme or unusual negligence even though there was no intent to deceive or do harm; also termed recklessness
lack of even slight care tantamount to reckless behavior that can be expected of a person
the assessment against a defendant of that portion of the damage caused by the defendant's negligence
failure of one or both parties in a contract to fulfill the requirements of the contract
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
laws that have been passed by the U.S. Congress and other governmental units

Accepted Answer

The Answer of third-party beneficiary and statutory law and joint is...

Question 19

A third-party beneficiary is one which

Accepted Answer

A)  has failed to establish legal standing before the court. 
B)  does not have privity of contract and is unknown to the contracting parties. 
C)  does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract. 
D)  may establish legal standing before the court after a contract has been consummated. 
A)  has failed to establish legal standing before the court. 
B)  does not have privity of contract and is unknown to the contracting parties. 
C)  does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract. 
D)  may establish legal standing before the court after a contract has been consummated.

Question 20

Privity of contract exists between

Accepted Answer

A)  auditor and the federal government. 
B)  auditor and third parties. 
C)  auditor and client. 
D)  auditor and client attorney. 
A)  auditor and the federal government. 
B)  auditor and third parties. 
C)  auditor and client. 
D)  auditor and client attorney.

Exam 5: Legal Liability

The only parties who can recover from auditors under the Securities Act of 1933 are original purchasers of securities.

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 term "audit failure" refers to the situation when the auditor issues an incorrect audit opinion that a qualified auditor, following auditing standards, would have not issued.

In the case of an audit, recklessness is present if the auditor knew an adequate audit was not done but still issued an opinion, even though there was no intent to deceive financial statement users. This is a description of the legal term

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

The Foreign Corrupt Practices Act (FCPA) of 1977

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

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

Which of the following is a true statement regarding CPAs' liability?

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

Define ordinary negligence, gross negligence, and constructive fraud.

The auditor generally owes a duty of care to third parties who are part of a limited group of persons whose reliance is "foreseen" by the auditor.

Under the Securities Exchange Act of 1934, which type of organization is required to submit audited financial statements to the SEC?

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?

Which of the following auditor's defenses usually means nonreliance on the financial statements by the user?

Discuss at least three major factors that have contributed to the recent increase in the number of lawsuits against auditors and the size of awards to plaintiffs.

A third-party beneficiary is one which

Privity of contract exists between

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

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, 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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