Question 1

A lack of reasonable care that may be characterized by the failure of auditors to follow GAAS in the conduct of the audit is known as

Accepted Answer

A)  Constructive fraud. 
B)  Fraud. 
C)  Gross negligence. 
D)  Ordinary negligence. 
A)  Constructive fraud. 
B)  Fraud. 
C)  Gross negligence. 
D)  Ordinary negligence.

Question 2

Plaintiffs bringing action under common law need not prove

Accepted Answer

A)  They have a "reliance letter" from auditors. 
B)  They were damaged or suffered a loss. 
C)  The financial statements contained a material misstatement. 
D)  Auditors failed to exercise the appropriate level of professional care and were responsible for the damages. 
A)  They have a "reliance letter" from auditors. 
B)  They were damaged or suffered a loss. 
C)  The financial statements contained a material misstatement. 
D)  Auditors failed to exercise the appropriate level of professional care and were responsible for the damages.

Question 3

Lancaster & Company,CPAs,is auditing the financial statements of Cooper Corporation.During the course of the audit,Cooper sent the following memo to the engagement partner: "We have requested $1 million worth of products from Ladd Corporation with credit terms of net 30 days.Ladd has requested audited financial statements for its credit decision.We notified Ladd that our annual audit was in process and we would provide the audited financial statements to them as soon as they were completed."
Which of the following statements is true with regard to this memo?

Accepted Answer

A)  It is an amendment to the engagement letter and makes Ladd a primary beneficiary of the audited financial statements. 
B)  It may move Ladd closer to a primary beneficiary and reposition it as a third party with a standing to sue, depending on the jurisdiction of any future lawsuits. 
C)  It is only a courtesy and does not alter the terms of the engagement letter or change the nature of Ladd's standing to sue. 
D)  It is an additional contract placing Ladd in privity of contract. 
A)  It is an amendment to the engagement letter and makes Ladd a primary beneficiary of the audited financial statements. 
B)  It may move Ladd closer to a primary beneficiary and reposition it as a third party with a standing to sue, depending on the jurisdiction of any future lawsuits. 
C)  It is only a courtesy and does not alter the terms of the engagement letter or change the nature of Ladd's standing to sue. 
D)  It is an additional contract placing Ladd in privity of contract.

Question 4

The Rosenblum,Inc.v.Adler decision allows potential auditor liability for ordinary negligence to third parties who are reasonably _____________________________ users of auditors' opinions and financial statements.

Accepted Answer

The answer of The Rosenblum,Inc.v.Adler decision allows potential auditor liability...

Question 5

Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law?

Accepted Answer

A)  The loss was caused by factors other than the materially misstated financial statements. 
B)  The third parties lack the proper standing (relationship) to bring suit in that jurisdiction. 
C)  The third parties lack a privity relationship with auditors. 
D)  The third parties did not rely upon the financial statements. 
A)  The loss was caused by factors other than the materially misstated financial statements. 
B)  The third parties lack the proper standing (relationship) to bring suit in that jurisdiction. 
C)  The third parties lack a privity relationship with auditors. 
D)  The third parties did not rely upon the financial statements.

Question 6

The defense for auditors under the Securities Exchange Act of 1934 is to prove they acted in _______________________________________ and had no knowledge of the material misstatements.

Accepted Answer

The answer of The defense for auditors under the Securities...

Question 7

Third-party plaintiffs bringing action under common law need not prove that

Accepted Answer

A)  They were damaged or suffered an economic loss. 
B)  They relied on the financial statements. 
C)  The financial statements were the direct cause of loss. 
D)  Breach of contract occurred. 
A)  They were damaged or suffered an economic loss. 
B)  They relied on the financial statements. 
C)  The financial statements were the direct cause of loss. 
D)  Breach of contract occurred.

Question 8

The contractual relationship between parties is known as ________________________.

Accepted Answer

The answer of The contractual relationship between parties is known...

Question 9

If auditors can prove that a reasonable examination was performed,then auditors are not liable for damages under section 11 of the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 10

Under generally accepted auditing standards,auditors are responsible for detecting

Accepted Answer

A)  All manners of fraud. 
B)  Theft and illegal acts. 
C)  Violations of auditing standards. 
D)  Material misstatements of financial statements. 
A)  All manners of fraud. 
B)  Theft and illegal acts. 
C)  Violations of auditing standards. 
D)  Material misstatements of financial statements.

Question 11

If a CPA firm is being sued for common law fraud by a third party based upon materially false financial statements,which of the following is the best defense the auditors could assert?

Accepted Answer

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

Question 12

Section 11(b)of the Securities Act of 1933 provides that individuals can be sued and may be liable for investors' losses in connection with a public securities offering under which of these circumstances?

Accepted Answer

A)  The chairman of the board of directors performed a reasonable investigation of facts in connection with preparing the section in the registration statement concerning the specification of the use of the proceeds of the offering. 
B)  A consulting engineer performed a reasonable investigation and reported in the registration statement on the feasibility of construction of a roadway to be financed with the offering proceeds. 
C)  The president of the issuing entity had no reason to doubt the report of the consulting engineer, although the president did not perform a separate reasonable investigation of her own. 
D)  The officers of the issuing entity were relieved that the independent auditors did not make an issue about the excessive valuation of inventory held to support construction in progress. 
A)  The chairman of the board of directors performed a reasonable investigation of facts in connection with preparing the section in the registration statement concerning the specification of the use of the proceeds of the offering. 
B)  A consulting engineer performed a reasonable investigation and reported in the registration statement on the feasibility of construction of a roadway to be financed with the offering proceeds. 
C)  The president of the issuing entity had no reason to doubt the report of the consulting engineer, although the president did not perform a separate reasonable investigation of her own. 
D)  The officers of the issuing entity were relieved that the independent auditors did not make an issue about the excessive valuation of inventory held to support construction in progress.

Question 13

The __________________________________ doctrine holds that auditors may be liable for ordinary negligence to foreseen third parties.

Accepted Answer

restatemen

Question 14

In a(n)_____________________________________,a small number of plaintiffs with small individual claims can bring suit for large damages in the name of an extended class.

Accepted Answer

The answer of In a(n)_____________________________________,a small number of plaintiffs with...

Question 15

The Securities and Exchange Commission document that governs the reporting of all business,analytical,and supplementary disclosures in reports required to be filed with the SEC is

Accepted Answer

A)  Form 10-K. 
B)  Financial Reporting Releases. 
C)  Regulation S-K. 
D)  Regulation S-X. 
A)  Form 10-K. 
B)  Financial Reporting Releases. 
C)  Regulation S-K. 
D)  Regulation S-X.

Question 16

Which of the following is not part of Sarbanes-Oxley?

Accepted Answer

A)  An increased duty on the part of auditors to identify financial statement fraud. 
B)  A requirement that the CEO and CFO certify the financial statements. 
C)  Increased penalties for destruction of records in federal investigations. 
D)  Increased penalties for mail fraud and criminal violations of the Securities Exchange Act of 1934. 
A)  An increased duty on the part of auditors to identify financial statement fraud. 
B)  A requirement that the CEO and CFO certify the financial statements. 
C)  Increased penalties for destruction of records in federal investigations. 
D)  Increased penalties for mail fraud and criminal violations of the Securities Exchange Act of 1934.

Question 17

The _____________________________ v.Touche case provided the precedent to allow third parties not in privity with auditors to bring suit for failure to exercise the appropriate level of professional care.

Accepted Answer

The answer of The _____________________________ v.Touche case provided the precedent...

A lack of reasonable care that may be characterized by the failure of auditors to follow GAAS in the conduct of the audit is known as

Plaintiffs bringing action under common law need not prove

The Rosenblum,Inc.v.Adler decision allows potential auditor liability for ordinary negligence to third parties who are reasonably _____________________________ users of auditors' opinions and financial statements.

Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law?

The defense for auditors under the Securities Exchange Act of 1934 is to prove they acted in _______________________________________ and had no knowledge of the material misstatements.

Third-party plaintiffs bringing action under common law need not prove that

The contractual relationship between parties is known as ________________________.

If auditors can prove that a reasonable examination was performed,then auditors are not liable for damages under section 11 of the Securities Act of 1933.

Under generally accepted auditing standards,auditors are responsible for detecting

If a CPA firm is being sued for common law fraud by a third party based upon materially false financial statements,which of the following is the best defense the auditors could assert?

Section 11(b)of the Securities Act of 1933 provides that individuals can be sued and may be liable for investors' losses in connection with a public securities offering under which of these circumstances?

The __________________________________ doctrine holds that auditors may be liable for ordinary negligence to foreseen third parties.

In a(n)_____________________________________,a small number of plaintiffs with small individual claims can bring suit for large damages in the name of an extended class.

The Securities and Exchange Commission document that governs the reporting of all business,analytical,and supplementary disclosures in reports required to be filed with the SEC is

Which of the following is not part of Sarbanes-Oxley?

The _____________________________ v.Touche case provided the precedent to allow third parties not in privity with auditors to bring suit for failure to exercise the appropriate level of professional care.

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

A lack of reasonable care that may be characterized by the failure of auditors to follow GAAS in the conduct of the audit is known as

Plaintiffs bringing action under common law need not prove

The Rosenblum,Inc.v.Adler decision allows potential auditor liability for ordinary negligence to third parties who are reasonably _____________________________ users of auditors' opinions and financial statements.

Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law?

The defense for auditors under the Securities Exchange Act of 1934 is to prove they acted in _______________________________________ and had no knowledge of the material misstatements.

Third-party plaintiffs bringing action under common law need not prove that

The contractual relationship between parties is known as ________________________.

If auditors can prove that a reasonable examination was performed,then auditors are not liable for damages under section 11 of the Securities Act of 1933.

Under generally accepted auditing standards,auditors are responsible for detecting

If a CPA firm is being sued for common law fraud by a third party based upon materially false financial statements,which of the following is the best defense the auditors could assert?

Section 11(b)of the Securities Act of 1933 provides that individuals can be sued and may be liable for investors' losses in connection with a public securities offering under which of these circumstances?

The __________________________________ doctrine holds that auditors may be liable for ordinary negligence to foreseen third parties.

In a(n)_____________________________________,a small number of plaintiffs with small individual claims can bring suit for large damages in the name of an extended class.

The Securities and Exchange Commission document that governs the reporting of all business,analytical,and supplementary disclosures in reports required to be filed with the SEC is

Which of the following is not part of Sarbanes-Oxley?

The _____________________________ v.Touche case provided the precedent to allow third parties not in privity with auditors to bring suit for failure to exercise the appropriate level of professional care.

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