A) requires that the CPA guarantee their work. B) requires that the auditor performs work with due care. C) requires that the auditor performs work with due diligence. D) does not recognize the concept of constructive fraud. A) requires that the CPA guarantee their work. B) requires that the auditor performs work with due care. C) requires that the auditor performs work with due diligence. D) does not recognize the concept of constructive fraud.

Exam 20: Legal Liability

The most restrictive view under common law is that auditors have no liability to third parties who do not have a privity relationship with the auditor. Briefly define privity and the effect it has on the auditor, client, investors, and creditors under common law.

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(Essay)

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Question 1

Correct Answer:

Verified

Privity means that a contract or specific agreement exists between two parties. The contract between the auditor and the client allows for privity because it is a direct contract. However, investors and creditors cannot successfully sue auditors, even if they are negligent, because they were not directly involved in the contract and do not, therefore, have privity.

The Securities Exchange Act of 1934:

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

Why are plaintiffs motivated to bring actions under RICO?

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(Multiple Choice)

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Question 3

Correct Answer:

Verified

What type of liability has the Private Securities Litigation Reform Act of 1995 created for cases filed under federal statutory law? How did this change from previous legislation? How has this impacted the cases against auditors and the way cases are now presented?

(Essay)

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Question 4

Suits are often brought against auditors that allege that the auditors did not detect some type of fraud or defalcation. List the six defenses that the auditors could mount against client negligence claims.

(Essay)

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Question 5

The Sarbanes-Oxley Act of 2002 grants the PCAOB the ability to undertake two functions over registered public accounting firms and persons associated with such firms. Briefly explain the purpose of the PCAOB, making sure to reference their two major functions.

(Essay)

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Question 6

The Foreign Corrupt Practices Act requires that:

(Multiple Choice)

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Question 7

Common law:

(Multiple Choice)

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Question 8

Which of the following is not one of the four general stages in the initiation and disposition of audit-related disputes?

(Multiple Choice)

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Question 9

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, which of the following must be proven by a purchaser of the security?

(Multiple Choice)

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Question 10

Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?

(Multiple Choice)

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Question 11

Jay and Co., CPAs, audited the financial statements of Maco Corp. Jay intentionally gave an unqualified opinion on the financial statements even though material misstatements were discovered as a result of the audit. The financial statements and Jay's unqualified opinion were included in a 10-K (annual report filed with the SEC)for the company. Which of the following statements is correct regarding Jay's liability to a purchaser of the offering under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934?

(Multiple Choice)

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Question 12

An auditor can be sued by a client for negligence under common law.

(True/False)

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Question 13

In regards to the Foreign Corrupt Practices Act (FCPA), external auditors:

(Multiple Choice)

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Question 14

An auditor can be held criminally liable for:

(Multiple Choice)

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Question 15

Which of the following is not required for establishing an auditor's liability for negligence?

(Multiple Choice)

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Question 16

Which statement is correct concerning an auditor's statutory legal liability?

(Multiple Choice)

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Question 17

Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?

(Multiple Choice)

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Question 18

Common law is written law enacted by the legislative branches of governments.

(True/False)

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Question 19

Under the antifraud provisions of Section 10(b)of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted:

(Multiple Choice)

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Question 20

Showing 1 - 20 of 64

The most restrictive view under common law is that auditors have no liability to third parties who do not have a privity relationship with the auditor. Briefly define privity and the effect it has on the auditor, client, investors, and creditors under common law.

The Securities Exchange Act of 1934:

Why are plaintiffs motivated to bring actions under RICO?

What type of liability has the Private Securities Litigation Reform Act of 1995 created for cases filed under federal statutory law? How did this change from previous legislation? How has this impacted the cases against auditors and the way cases are now presented?

Suits are often brought against auditors that allege that the auditors did not detect some type of fraud or defalcation. List the six defenses that the auditors could mount against client negligence claims.

The Sarbanes-Oxley Act of 2002 grants the PCAOB the ability to undertake two functions over registered public accounting firms and persons associated with such firms. Briefly explain the purpose of the PCAOB, making sure to reference their two major functions.

The Foreign Corrupt Practices Act requires that:

Common law:

Which of the following is not one of the four general stages in the initiation and disposition of audit-related disputes?

Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?

An auditor can be sued by a client for negligence under common law.

In regards to the Foreign Corrupt Practices Act (FCPA), external auditors:

An auditor can be held criminally liable for:

Which of the following is not required for establishing an auditor's liability for negligence?

Which statement is correct concerning an auditor's statutory legal liability?

Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?

Common law is written law enacted by the legislative branches of governments.

Under the antifraud provisions of Section 10(b)of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Assurance, Attestation, and Internal Auditing Services

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