Question 1

Which of the following is not within the class of foreseen users of an accountant's work product?

Accepted Answer

A)  A prospective shareholder of the client. 
B)  A lender bank when the accountant knows only that the client will use the financial statements to obtain a loan from an unspecified source. 
C)  A bank when the accountant knows the client will rely on the financial statements as the basis for a loan from the bank. 
D)  An investor if the accountant knows that the client is seeking capital from a select group of investors. 
A)  A prospective shareholder of the client. 
B)  A lender bank when the accountant knows only that the client will use the financial statements to obtain a loan from an unspecified source. 
C)  A bank when the accountant knows the client will rely on the financial statements as the basis for a loan from the bank. 
D)  An investor if the accountant knows that the client is seeking capital from a select group of investors. A

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

When performing an audit, a CPA will most likely be considered negligent when the CPA fails to

Accepted Answer

A)  Detect all of a client's fraudulent activities. 
B)  Include a negligence disclaimer in the client engagement letter. 
C)  Warn a client of known internal control weaknesses. 
D)  Warn a client's customers of embezzlement by the client's employees. 
A)  Detect all of a client's fraudulent activities. 
B)  Include a negligence disclaimer in the client engagement letter. 
C)  Warn a client of known internal control weaknesses. 
D)  Warn a client's customers of embezzlement by the client's employees.

Question 5

Which of the following is the best statement of the general standard of performance owed by an accountant in his or her professional work?

Accepted Answer

A)  To do the job correctly and discover all irregularities. 
B)  To follow generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). 
C)  To act as a professional and not commit fraud. 
D)  To exercise the skill and care of the ordinarily prudent accountant in the same circumstances. 
A)  To do the job correctly and discover all irregularities. 
B)  To follow generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). 
C)  To act as a professional and not commit fraud. 
D)  To exercise the skill and care of the ordinarily prudent accountant in the same circumstances.

Question 6

Rule 10b-5 under Section 10(b) of the Securities Exchange Act of 1934 imposes liability on an accountant for violation of certain duties. Which of the following is an investor not required to prove to recover from a CPA?

Accepted Answer

A)  A material, factual misrepresentation or omission. 
B)  Reliance by the plaintiff on the financial statements. 
C)  Damages suffered as a result of reliance on the financial statements. 
D)  The security price was artificially inflated as a result of the materially misstated financial statements. 
A)  A material, factual misrepresentation or omission. 
B)  Reliance by the plaintiff on the financial statements. 
C)  Damages suffered as a result of reliance on the financial statements. 
D)  The security price was artificially inflated as a result of the materially misstated financial statements.

Question 7

This act increased protection available to whistleblowers.

Accepted Answer

A)  Sarbanes-Oxley Act of 2002. 
B)  Securities Act of 1933. 
C)  Securities Act of 1934. 
D)  Securities Litigation Uniform Standards Act of 1998. 
A)  Sarbanes-Oxley Act of 2002. 
B)  Securities Act of 1933. 
C)  Securities Act of 1934. 
D)  Securities Litigation Uniform Standards Act of 1998.

Question 8

Gold, CPA, rendered an unqualified opinion on the financial statements of Eastern Power Company. Egan purchased Eastern bonds in a public offering subject to the Securities Act of 1933. The registration statement filed with the SEC included the audited financial statements. Gold is being sued by Egan under Section 11 of the Securities Act of 1933 for the misstatements contained in the financial statements. To prevail, Egan must prove

Accepted Answer

A)  Neither scienter nor reliance. 
B)  Reliance but not scienter. 
C)  Scienter but not reliance. 
D)  Both scienter and reliance. 
A)  Neither scienter nor reliance. 
B)  Reliance but not scienter. 
C)  Scienter but not reliance. 
D)  Both scienter and reliance.

Question 9

An auditor can be sued by a third party under statutory law for willful violation of federal statutes.

Accepted Answer

A) True 
 B)False

Question 10

Under the Rusch Factors doctrine, to which of the following parties will an accountant be liable for negligence?

Accepted Answer

A)  Only parties in privity and not those reasonably foreseeable third parties. 
B)  Both parties in privity and reasonably foreseeable third parties. 
C)  Only reasonably foreseeable third parties and not those parties in privity. 
D)  Neither reasonably foreseeable third parties nor parties in privity. 
A)  Only parties in privity and not those reasonably foreseeable third parties. 
B)  Both parties in privity and reasonably foreseeable third parties. 
C)  Only reasonably foreseeable third parties and not those parties in privity. 
D)  Neither reasonably foreseeable third parties nor parties in privity.

Question 11

What is the primary reason that Congress passed the Securities Litigation Uniform Standards Act of 1998?

Accepted Answer

A)  To overturn the Private Securities Litigation Reform Act of 1995. 
B)  As a result of concerns that plaintiff attorneys could get around the Private Securities Litigation Reform Act of 1995 by filing class action lawsuits involving nationally traded securities in state courts. 
C)  To provide for joint and several liability rather than proportionate liability. 
D)  To ensure that all publicly-held companies receive similar audits. 
A)  To overturn the Private Securities Litigation Reform Act of 1995. 
B)  As a result of concerns that plaintiff attorneys could get around the Private Securities Litigation Reform Act of 1995 by filing class action lawsuits involving nationally traded securities in state courts. 
C)  To provide for joint and several liability rather than proportionate liability. 
D)  To ensure that all publicly-held companies receive similar audits.

Question 12

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?

Accepted Answer

Prior to the passage of the 1995 Act, au

Question 13

An audit client loses a lawsuit and the judgment is for an amount in excess of the contingent liability the client had recorded in the audited financial statements. The auditor, using the typical degree of due care as other members of the profession, determined that the amount of contingent liability recorded by the client in the financial statements for the pending lawsuit was reasonable, given the facts at the time of the audit. This judgment by the auditor is likely to result in

Accepted Answer

A)  Sanctions by the PCAOB levied against the individual auditor as well as the accounting firm. 
B)  A successful lawsuit claiming auditor negligence. 
C)  A successful lawsuit claiming breach of contract. 
D)  No legal action whatsoever since due care was exercised. 
A)  Sanctions by the PCAOB levied against the individual auditor as well as the accounting firm. 
B)  A successful lawsuit claiming auditor negligence. 
C)  A successful lawsuit claiming breach of contract. 
D)  No legal action whatsoever since due care was exercised.

Question 14

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

Accepted Answer

A)  An undetected material misstatement. 
B)  Failure to exercise due care. 
C)  A connection between the auditor's negligence and a plaintiff's loss. 
D)  A duty to conform to a standard of care. 
A)  An undetected material misstatement. 
B)  Failure to exercise due care. 
C)  A connection between the auditor's negligence and a plaintiff's loss. 
D)  A duty to conform to a standard of care.

Question 15

Privity of contract is the most restrictive view for plaintiffs under common law.

Accepted Answer

A) True 
 B)False

Question 16

Section 11 under the Securities Act of 1933 treats claims against auditors more favorably than common law. What two things does a plaintiff need to prove to have a case against the auditor of a company in which she purchased new investments? What does the auditor have to do to have the case dismissed?

Accepted Answer

The plaintiff need only prove that (1) a

Question 17

One of the greatest sources of liability for auditors under the 1934 Act is Section 10(b) and the related Rule 10b-5, which states that it is unlawful for any person to defraud, make any untrue statement of a material fact, or engage in any act in connection with the purchase or sale of a security. Once a plaintiff has established that he or she can sue under Rule 10b-5, there are four elements that must be proven. List the four elements.

Accepted Answer

1. A material, factual misrepresentation

Question 18

In a common law action against an accountant in a state following the Ultramares doctrine, lack of privity is a viable defense if the plaintiff

Accepted Answer

A)  Can prove the presence of gross negligence which amounts to a reckless disregard for the truth. 
B)  Bases the action upon fraud. 
C)  Is the client's creditor who sues the accountant for negligence. 
D)  Is the accountant's client. 
A)  Can prove the presence of gross negligence which amounts to a reckless disregard for the truth. 
B)  Bases the action upon fraud. 
C)  Is the client's creditor who sues the accountant for negligence. 
D)  Is the accountant's client.

Question 19

To recover against an auditor in a negligence case, the client must prove that the client sustained an actual loss or damage.

Accepted Answer

A) True 
 B)False

Question 20

Briefly describe the Sarbanes-Oxley Act of 2002. Be sure to mention (1) who passed the Act, (2) its primary objectives, (3) major aspects of the Act, (4) the parties that it affects, and (5) its relationship to the SEC rules.

Accepted Answer

(1) The Sarbanes-Oxley Act of 2002 was p

Which of the following is not within the class of foreseen users of an accountant's work product?

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

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

When performing an audit, a CPA will most likely be considered negligent when the CPA fails to

Which of the following is the best statement of the general standard of performance owed by an accountant in his or her professional work?

Rule 10b-5 under Section 10(b) of the Securities Exchange Act of 1934 imposes liability on an accountant for violation of certain duties. Which of the following is an investor not required to prove to recover from a CPA?

This act increased protection available to whistleblowers.

An auditor can be sued by a third party under statutory law for willful violation of federal statutes.

Under the Rusch Factors doctrine, to which of the following parties will an accountant be liable for negligence?

What is the primary reason that Congress passed the Securities Litigation Uniform Standards Act of 1998?

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?

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

Privity of contract is the most restrictive view for plaintiffs under common law.

In a common law action against an accountant in a state following the Ultramares doctrine, lack of privity is a viable defense if the plaintiff

To recover against an auditor in a negligence case, the client must prove that the client sustained an actual loss or damage.

Briefly describe the Sarbanes-Oxley Act of 2002. Be sure to mention (1) who passed the Act, (2) its primary objectives, (3) major aspects of the Act, (4) the parties that it affects, and (5) its relationship to the SEC rules.

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters

Exam 20: Legal Liability

Which of the following is not within the class of foreseen users of an accountant's work product?

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

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

When performing an audit, a CPA will most likely be considered negligent when the CPA fails to

Which of the following is the best statement of the general standard of performance owed by an accountant in his or her professional work?

Rule 10b-5 under Section 10(b) of the Securities Exchange Act of 1934 imposes liability on an accountant for violation of certain duties. Which of the following is an investor not required to prove to recover from a CPA?

This act increased protection available to whistleblowers.

An auditor can be sued by a third party under statutory law for willful violation of federal statutes.

Under the Rusch Factors doctrine, to which of the following parties will an accountant be liable for negligence?

What is the primary reason that Congress passed the Securities Litigation Uniform Standards Act of 1998?

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?

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

Privity of contract is the most restrictive view for plaintiffs under common law.

In a common law action against an accountant in a state following the Ultramares doctrine, lack of privity is a viable defense if the plaintiff

To recover against an auditor in a negligence case, the client must prove that the client sustained an actual loss or damage.

Briefly describe the Sarbanes-Oxley Act of 2002. Be sure to mention (1) who passed the Act, (2) its primary objectives, (3) major aspects of the Act, (4) the parties that it affects, and (5) its relationship to the SEC rules.

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters