Question 1

In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent auditors under common law,section 10(b)of the Securities Exchange Act of 1934

Accepted Answer

A)  Is the same regarding plaintiffs' need to prove damages or losses. 
B)  Is the same regarding plaintiffs' need to establish privity or a beneficiary relationship with auditors. 
C)  Does not require that plaintiffs prove their reliance on materially misstated financial statements. 
D)  Does not require that plaintiffs prove that relying on the materially misstated financial statements caused their losses. 
A)  Is the same regarding plaintiffs' need to prove damages or losses. 
B)  Is the same regarding plaintiffs' need to establish privity or a beneficiary relationship with auditors. 
C)  Does not require that plaintiffs prove their reliance on materially misstated financial statements. 
D)  Does not require that plaintiffs prove that relying on the materially misstated financial statements caused their losses.

Question 2

Rule 10b-5 requires that the plaintiff must prove that auditors acted with intent to deceive in order to impose liability.

Accepted Answer

A) True 
 B)False

Question 3

Strict privity is the relationship of parties who enter into a contract together.

Accepted Answer

A) True 
 B)False

Question 4

Foreseeable third parties are best described as

Accepted Answer

A)  Management of the entity. 
B)  Those third parties that have a direct relationship with auditors through previous contract related to the audit engagement. 
C)  Those third parties who will rely on the audit and are specifically known by auditors. 
D)  Those third parties whose decisions normally rely on audited financial statements and opinions on those financial statements. 
A)  Management of the entity. 
B)  Those third parties that have a direct relationship with auditors through previous contract related to the audit engagement. 
C)  Those third parties who will rely on the audit and are specifically known by auditors. 
D)  Those third parties whose decisions normally rely on audited financial statements and opinions on those financial statements.

Question 5

Auditors have high exposure to liability under the Securities Act of 1933,section 11,primarily because the ______________________________________ has been placed on auditors.

Accepted Answer

The answer of Auditors have high exposure to liability under...

Question 6

Gross negligence represents a more significant departure from appropriate professional care than ordinary negligence.

Accepted Answer

A) True 
 B)False

Question 7

When an entity registers a security offering under the Securities Act of 1933,the law provides an investor

Accepted Answer

A)  An SEC guarantee that the information in the registration statement is true. 
B)  Insurance against loss from the investment. 
C)  Financial information examined by independent auditors. 
D)  Inside information about the entity's trade secrets. 
A)  An SEC guarantee that the information in the registration statement is true. 
B)  Insurance against loss from the investment. 
C)  Financial information examined by independent auditors. 
D)  Inside information about the entity's trade secrets.

Question 8

Which of the following is the best defense that auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements?

Accepted Answer

A)  Contributory negligence on the part of the client. 
B)  A disclaimer contained in the engagement letter. 
C)  Lack of privity. 
D)  Lack of scienter. 
A)  Contributory negligence on the part of the client. 
B)  A disclaimer contained in the engagement letter. 
C)  Lack of privity. 
D)  Lack of scienter.

Question 9

If an audit is performed for the benefit of a specific person or organization,that person or organization is known as a(n)

Accepted Answer

A)  Party to the contract. 
B)  Primary beneficiary. 
C)  Foreseeable third party. 
D)  Prime benefactor. 
A)  Party to the contract. 
B)  Primary beneficiary. 
C)  Foreseeable third party. 
D)  Prime benefactor.

Question 10

Which of the following is not a reason that the Class Action Fairness Act of 2005 will benefit auditors in class action lawsuits?

Accepted Answer

A)  Federal courts provide a higher level of scrutiny for class action lawsuits than state courts. 
B)  Federal courts have more resources at their disposal for managing class action lawsuits. 
C)  State courts may discriminate against defendants from other jurisdictions. 
D)  Verdicts in state courts are normally more appropriate to apply to multiple jurisdictions than verdicts in federal courts. 
A)  Federal courts provide a higher level of scrutiny for class action lawsuits than state courts. 
B)  Federal courts have more resources at their disposal for managing class action lawsuits. 
C)  State courts may discriminate against defendants from other jurisdictions. 
D)  Verdicts in state courts are normally more appropriate to apply to multiple jurisdictions than verdicts in federal courts.

Question 11

In each of the individual cases,indicate the potential liability and identify the appropriate basis under common or statutory law.

Accepted Answer

@#IMG-DLM& 
1.Jones may be liable to Iceberg,depen

Question 12

Which of the following cases provides auditors the broadest exposure for liability to third parties for ordinary negligence under common law?

Accepted Answer

A)  Credit Alliance v. Arthur Andersen. 
B)  Fleet National Bank v. Gloucester Co. 
C)  Rosenblum, Inc. v. Adler. 
D)  Ultramares. 
A)  Credit Alliance v. Arthur Andersen. 
B)  Fleet National Bank v. Gloucester Co. 
C)  Rosenblum, Inc. v. Adler. 
D)  Ultramares.

Question 13

______________________________ liability refers to auditors' liability based on prior legal judgments and precedents.

Accepted Answer

The answer of ______________________________ liability refers to auditors' liability based...

Question 14

N.Lauren hires D. Humphrey, CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements are required to be filed with a regulatory body by October 1. Humphrey does not complete the audit until October 5. Lauren is late filing the financial statements and is fined $100,000 by the regulatory body. Lauren would most likely sue Humphrey claiming

Accepted Answer

A)  Breach of contract. 
B)  Ordinary negligence. 
C)  Gross negligence. 
D)  Constructive fraud. 
A)  Breach of contract. 
B)  Ordinary negligence. 
C)  Gross negligence. 
D)  Constructive fraud.

Question 15

Assume that auditors lost a civil lawsuit for damages and the court found total losses of $5 million.If the auditors were determined to be 30 percent at fault and were the only solvent defendant,what is the auditors' likely obligation under proportionate liability?

Accepted Answer

A)  $ 5,000,000. 
B)  Zero. 
C)  $2,250,000. 
D)  $1,500,000. 
A)  $ 5,000,000. 
B)  Zero. 
C)  $2,250,000. 
D)  $1,500,000.

Question 16

When a client sues an accountant for failure to perform consulting work properly,the accountants' best defense is probably based on the doctrine of

Accepted Answer

A)  Lack of privity of contract. 
B)  Contributory negligence on the part of the client. 
C)  Lack of any measurable dollar amount of damages. 
D)  No negligence on the part of the consultant. 
A)  Lack of privity of contract. 
B)  Contributory negligence on the part of the client. 
C)  Lack of any measurable dollar amount of damages. 
D)  No negligence on the part of the consultant.

Question 17

Beckler & Associates,CPAs,examined and issued an unqualified opinion on the financial statements of Queen Co.The financial statements contained misstatements that resulted in a material overstatement of Queen's net worth.Queen provided the audited financial statements to Mac Bank in connection with a loan made by Mac to Queen.Beckler knew that the financial statements would be provided to Mac.Queen defaulted on the loan.Mac sued Beckler to recover for its losses associated with Queen's default.Which of the following must Mac prove in order to recover? I.Beckler did not conduct the audit with the appropriate level of professional care.
II)Mac relied on the financial statements.

Accepted Answer

A)  I only. 
B)  II only. 
C)  Both I and II. 
D)  Neither I nor II. 
A)  I only. 
B)  II only. 
C)  Both I and II. 
D)  Neither I nor II.

Question 18

N.Lauren hires D. Humphrey, CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements will be provided to Key Largo Bank for a loan. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves the loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming that

Accepted Answer

A)  It was in privity of the contract. 
B)  It was a primary beneficiary. 
C)  It was a foreseen party. 
D)  It was a foreseeable party. 
A)  It was in privity of the contract. 
B)  It was a primary beneficiary. 
C)  It was a foreseen party. 
D)  It was a foreseeable party.

Question 19

Auditors cannot be held liable to their clients for failure to detect material management fraud.

Accepted Answer

A) True 
 B)False

Question 20

The U.S.Supreme Court ruled that auditors are not subject to civil __________________________________________________ complaints unless they actually participated in the management or operation of a corrupt business.

Accepted Answer

RICO (Racketeer Infl

In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent auditors under common law,section 10(b)of the Securities Exchange Act of 1934

Rule 10b-5 requires that the plaintiff must prove that auditors acted with intent to deceive in order to impose liability.

Strict privity is the relationship of parties who enter into a contract together.

Foreseeable third parties are best described as

Auditors have high exposure to liability under the Securities Act of 1933,section 11,primarily because the ______________________________________ has been placed on auditors.

Gross negligence represents a more significant departure from appropriate professional care than ordinary negligence.

When an entity registers a security offering under the Securities Act of 1933,the law provides an investor

Which of the following is the best defense that auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements?

If an audit is performed for the benefit of a specific person or organization,that person or organization is known as a(n)

Which of the following is not a reason that the Class Action Fairness Act of 2005 will benefit auditors in class action lawsuits?

In each of the individual cases,indicate the potential liability and identify the appropriate basis under common or statutory law.

Which of the following cases provides auditors the broadest exposure for liability to third parties for ordinary negligence under common law?

______________________________ liability refers to auditors' liability based on prior legal judgments and precedents.

Assume that auditors lost a civil lawsuit for damages and the court found total losses of $5 million.If the auditors were determined to be 30 percent at fault and were the only solvent defendant,what is the auditors' likely obligation under proportionate liability?

When a client sues an accountant for failure to perform consulting work properly,the accountants' best defense is probably based on the doctrine of

Auditors cannot be held liable to their clients for failure to detect material management fraud.

The U.S.Supreme Court ruled that auditors are not subject to civil __________________________________________________ complaints unless they actually participated in the management or operation of a corrupt business.

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Internal Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

Exam 15: Legal Liability

In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent auditors under common law,section 10(b)of the Securities Exchange Act of 1934

Rule 10b-5 requires that the plaintiff must prove that auditors acted with intent to deceive in order to impose liability.

Strict privity is the relationship of parties who enter into a contract together.

Foreseeable third parties are best described as

Auditors have high exposure to liability under the Securities Act of 1933,section 11,primarily because the ______________________________________ has been placed on auditors.

Gross negligence represents a more significant departure from appropriate professional care than ordinary negligence.

When an entity registers a security offering under the Securities Act of 1933,the law provides an investor

Which of the following is the best defense that auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements?

If an audit is performed for the benefit of a specific person or organization,that person or organization is known as a(n)

Which of the following is not a reason that the Class Action Fairness Act of 2005 will benefit auditors in class action lawsuits?

In each of the individual cases,indicate the potential liability and identify the appropriate basis under common or statutory law.

Which of the following cases provides auditors the broadest exposure for liability to third parties for ordinary negligence under common law?

______________________________ liability refers to auditors' liability based on prior legal judgments and precedents.

Assume that auditors lost a civil lawsuit for damages and the court found total losses of $5 million.If the auditors were determined to be 30 percent at fault and were the only solvent defendant,what is the auditors' likely obligation under proportionate liability?

When a client sues an accountant for failure to perform consulting work properly,the accountants' best defense is probably based on the doctrine of

Auditors cannot be held liable to their clients for failure to detect material management fraud.

The U.S.Supreme Court ruled that auditors are not subject to civil __________________________________________________ complaints unless they actually participated in the management or operation of a corrupt business.

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Internal Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters