Question 1

A limited liability partnership form of organization:

Accepted Answer

A) Decreases liability of all partners of a CPA firm. 
B) Has similar liability requirements to that of a professional corporation. 
C) Eliminates personal liability for some, but not all, partners. 
D) Eliminates personal liability for all partners. 
A) Decreases liability of all partners of a CPA firm. 
B) Has similar liability requirements to that of a professional corporation. 
C) Eliminates personal liability for some, but not all, partners. 
D) Eliminates personal liability for all partners.

Question 2

Assume that $500,000 in damages are awarded to a plaintiff,and the CPA's percentage of responsibility established at 10%,while others are responsible for the other 90%.Assume the others have no financial resources.As a result the CPA has been required to pay the entire $500,000.The auditor's liability is most likely based upon which approach to assessing liability?

Accepted Answer

A) Absolute liability 
B) Contributory negligence 
C) Joint and several liability. 
D) Proportional liability. 
A) Absolute liability 
B) Contributory negligence 
C) Joint and several liability. 
D) Proportional liability.

Question 3

Which common law approach leads to increased CPA liability to "foreseeable" third parties for ordinary negligence?

Accepted Answer

A) Ultramares v.Touche. 
B) Restatement of Torts. 
C) Rule 10b-5. 
D) Rosenblum v.Adler. 
A) Ultramares v.Touche. 
B) Restatement of Torts. 
C) Rule 10b-5. 
D) Rosenblum v.Adler.

Question 4

The Securities Act of 1934 includes provisions for criminal charges against persons violating the Act.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

A) The CPA is liable only to third parties in privity of contract with the CPA. 
B) The CPA is liable only to known users of the financial statements. 
C) The CPA probably is liable to any person who suffered a loss as a result of the fraud. 
D) The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion. 
A) The CPA is liable only to third parties in privity of contract with the CPA. 
B) The CPA is liable only to known users of the financial statements. 
C) The CPA probably is liable to any person who suffered a loss as a result of the fraud. 
D) The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion.

Question 6

Which of the following is accurate with respect to litigation involving CPAs?

Accepted Answer

A) A CPA will not be found liable for an audit unless the CPA has audited all affiliates of that company. 
B) A CPA may not successfully assert as a defense that the CPA had no motive to be part of a fraud. 
C) A CPA may be exposed to criminal as well as civil liability. 
D) A CPA is primarily responsible, while the client is secondarily responsible for the notes in an annual report filed with the SEC. 
A) A CPA will not be found liable for an audit unless the CPA has audited all affiliates of that company. 
B) A CPA may not successfully assert as a defense that the CPA had no motive to be part of a fraud. 
C) A CPA may be exposed to criminal as well as civil liability. 
D) A CPA is primarily responsible, while the client is secondarily responsible for the notes in an annual report filed with the SEC.

Question 7

In which of the following court cases was a precedent set increasing liability to third parties arising from audits under common law?

Accepted Answer

A) Rosenblum v.Adler. 
B) Hochfelder v.Ernst. 
C) 1136 Tenants Corporation v.Rothenberg. 
D) Continental Vending. 
A) Rosenblum v.Adler. 
B) Hochfelder v.Ernst. 
C) 1136 Tenants Corporation v.Rothenberg. 
D) Continental Vending.

Question 8

An auditor knew that the purpose of her audit was to render reasonable assurance on financial statements that were to be used for the application for a loan; the auditor did not know the identity of the bank that would eventually give the loan.Under the foreseeable third party approach the auditor is generally liable to the bank which subsequently grants the loan for:

Accepted Answer

A) Lack of due diligence. 
B) Lack of good faith. 
C) Gross negligence, but not ordinary negligence. 
D) Either ordinary or gross negligence. 
A) Lack of due diligence. 
B) Lack of good faith. 
C) Gross negligence, but not ordinary negligence. 
D) Either ordinary or gross negligence.

Question 9

Most charges made against auditors under common law are criminal.

Accepted Answer

A) True 
 B)False

Question 10

The precedent set by the Hochfelder v.Ernst case is generally believed to have increased auditors' legal liability.

Accepted Answer

A) True 
 B)False

Question 11

Under Section 10 of the 1934 Securities Exchange Act auditors are liable to security purchasers for:

Accepted Answer

A) Lack of due diligence. 
B) Existence of scienter. 
C) Ordinary negligence. 
D) Auditors have no liability to security purchasers under this act. 
A) Lack of due diligence. 
B) Existence of scienter. 
C) Ordinary negligence. 
D) Auditors have no liability to security purchasers under this act.

Question 12

An auditor knew that the purpose of her audit was to render reasonable assurance on financial statements that were to be used for the application for a loan; the auditor did not know the identity of the bank that would eventually give the loan.Under the Restatement of Torts approach to liability the auditor is generally liable to the bank which subsequently grants the loan for:

Accepted Answer

A) Lack of due diligence. 
B) Lack of good faith. 
C) Gross negligence, but not ordinary negligence. 
D) Either ordinary or gross negligence. 
A) Lack of due diligence. 
B) Lack of good faith. 
C) Gross negligence, but not ordinary negligence. 
D) Either ordinary or gross negligence.

Question 13

The auditors can be held liable for negligence in audits of financial statements,but not in reviews of financial statements.

Accepted Answer

A) True 
 B)False

Question 14

Quincy bought Teal Corp.common stock in an offering registered under the Securities Act of 1933.Worth & Co.,CPAs,gave an unqualified opinion on Teal's financial statements that were included in the registration statement filed with the SEC.Quincy sued Worth under the provisions of the 1933 Act that deal with omission of facts required to be in the registration statement.Quincy must prove that:

Accepted Answer

A) There was fraudulent activity by Worth. 
B) There was a material misstatement in the financial statements. 
C) Quincy relied on Worth's opinion. 
D) Quincy was in privity with Worth. 
A) There was fraudulent activity by Worth. 
B) There was a material misstatement in the financial statements. 
C) Quincy relied on Worth's opinion. 
D) Quincy was in privity with Worth.

Question 15

The Private Securities Litigation Reform Act of 1995 imposes proportionate liability on the CPA who:

Accepted Answer

A) Unknowingly violates the 1934 Securities Exchange Act. 
B) Knowingly or unknowingly violates the 1934 Securities Exchange Act. 
C) Unknowingly violates the 1933 Securities Act. 
D) Knowingly or unknowingly violates the 1933 Securities Act. 
A) Unknowingly violates the 1934 Securities Exchange Act. 
B) Knowingly or unknowingly violates the 1934 Securities Exchange Act. 
C) Unknowingly violates the 1933 Securities Act. 
D) Knowingly or unknowingly violates the 1933 Securities Act.

Question 16

A principle that may reduce or entirely eliminate auditor liability to a client is:

Accepted Answer

A) Client constructive negligence. 
B) Client contributory negligence. 
C) Auditor ordinary negligence. 
D) Auditor gross negligence. 
A) Client constructive negligence. 
B) Client contributory negligence. 
C) Auditor ordinary negligence. 
D) Auditor gross negligence.

Question 17

Which of the following is the best defense that a CPA can assert against common law litigation by a stockholder claiming fraud based on an unqualified opinion on materially misstated financial statements?

Accepted Answer

A) Lack of due diligence. 
B) Lack of gross negligence. 
C) Contributory negligence on the part of the client. 
D) A disclaimer contained in the engagement letter. 
A) Lack of due diligence. 
B) Lack of gross negligence. 
C) Contributory negligence on the part of the client. 
D) A disclaimer contained in the engagement letter.

Question 18

Under the Securities Act of 1933 the burden of proof that the plaintiff sustained a loss must be proven by the:

Accepted Answer

A) Plaintiff. 
B) Defendant. 
C) SEC. 
D) Jury. 
A) Plaintiff. 
B) Defendant. 
C) SEC. 
D) Jury.

Question 19

Jones,CPA,is in court defending himself against a lawsuit filed under the 1933 Securities Act.The charges have been filed by purchasers of securities covered under that act.If the purchasers prove their required elements,in general Jones will have to prove that:

Accepted Answer

A) He is not guilty of gross negligence. 
B) He performed the audit with good faith. 
C) He performed the audit with due diligence. 
D) The plaintiffs did not show him to be negligent. 
A) He is not guilty of gross negligence. 
B) He performed the audit with good faith. 
C) He performed the audit with due diligence. 
D) The plaintiffs did not show him to be negligent.

Question 20

Section 11 of the Securities Act of 1933,and Section 10 of the Securities Exchange Act of 1934 make a CPA potentially liable to a purchaser of registered securities.For items a through f,place a checkmark (Ö)under the column if the plaintiff must prove its existence:

Accepted Answer

The answer of Section 11 of the Securities Act of...

A limited liability partnership form of organization:

Which common law approach leads to increased CPA liability to "foreseeable" third parties for ordinary negligence?

The Securities Act of 1934 includes provisions for criminal charges against persons violating the Act.

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?

Which of the following is accurate with respect to litigation involving CPAs?

In which of the following court cases was a precedent set increasing liability to third parties arising from audits under common law?

Most charges made against auditors under common law are criminal.

The precedent set by the Hochfelder v.Ernst case is generally believed to have increased auditors' legal liability.

Under Section 10 of the 1934 Securities Exchange Act auditors are liable to security purchasers for:

The auditors can be held liable for negligence in audits of financial statements,but not in reviews of financial statements.

The Private Securities Litigation Reform Act of 1995 imposes proportionate liability on the CPA who:

A principle that may reduce or entirely eliminate auditor liability to a client is:

Which of the following is the best defense that a CPA can assert against common law litigation by a stockholder claiming fraud based on an unqualified opinion on materially misstated financial statements?

Under the Securities Act of 1933 the burden of proof that the plaintiff sustained a loss must be proven by the:

Jones,CPA,is in court defending himself against a lawsuit filed under the 1933 Securities Act.The charges have been filed by purchasers of securities covered under that act.If the purchasers prove their required elements,in general Jones will have to prove that:

Section 11 of the Securities Act of 1933,and Section 10 of the Securities Exchange Act of 1934 make a CPA potentially liable to a purchaser of registered securities.For items a through f,place a checkmark (Ö)under the column if the plaintiff must prove its existence:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property Plant and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Probability-Proportion-To-Size Sampling

Filters

Exam 4: Legal Liability of CPAS

A limited liability partnership form of organization:

Which common law approach leads to increased CPA liability to "foreseeable" third parties for ordinary negligence?

The Securities Act of 1934 includes provisions for criminal charges against persons violating the Act.

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?

Which of the following is accurate with respect to litigation involving CPAs?

In which of the following court cases was a precedent set increasing liability to third parties arising from audits under common law?

Most charges made against auditors under common law are criminal.

The precedent set by the Hochfelder v.Ernst case is generally believed to have increased auditors' legal liability.

Under Section 10 of the 1934 Securities Exchange Act auditors are liable to security purchasers for:

The auditors can be held liable for negligence in audits of financial statements,but not in reviews of financial statements.

The Private Securities Litigation Reform Act of 1995 imposes proportionate liability on the CPA who:

A principle that may reduce or entirely eliminate auditor liability to a client is:

Which of the following is the best defense that a CPA can assert against common law litigation by a stockholder claiming fraud based on an unqualified opinion on materially misstated financial statements?

Under the Securities Act of 1933 the burden of proof that the plaintiff sustained a loss must be proven by the:

Jones,CPA,is in court defending himself against a lawsuit filed under the 1933 Securities Act.The charges have been filed by purchasers of securities covered under that act.If the purchasers prove their required elements,in general Jones will have to prove that:

Section 11 of the Securities Act of 1933,and Section 10 of the Securities Exchange Act of 1934 make a CPA potentially liable to a purchaser of registered securities.For items a through f,place a checkmark (Ö)under the column if the plaintiff must prove its existence:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property Plant and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Probability-Proportion-To-Size Sampling

Filters