Question 1

An auditor can be guilty under federal statutory law if s/he was reckless in performance of her/his professional duties.

Accepted Answer

A) True 
 B)False

Question 2

A CPA's duty of due care to a client most likely will be breached when a CPA

Accepted Answer

A)  Gives a client an oral instead of a written report. 
B)  Gives a client incorrect advice based on an honest error of judgment. 
C)  Fails to give tax advice that saves the client money. 
D)  Fails to follow generally accepted auditing standards. 
A)  Gives a client an oral instead of a written report. 
B)  Gives a client incorrect advice based on an honest error of judgment. 
C)  Fails to give tax advice that saves the client money. 
D)  Fails to follow generally accepted auditing standards.

Question 3

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

Accepted Answer

A)  Discovery of fraud subsequent to issuance of the audit report. 
B)  Users of financial statements incur losses. 
C)  The legal process commencing with the filing of a lawsuit. 
D)  Final resolution of the dispute. 
A)  Discovery of fraud subsequent to issuance of the audit report. 
B)  Users of financial statements incur losses. 
C)  The legal process commencing with the filing of a lawsuit. 
D)  Final resolution of the dispute.

Question 4

The auditor failing to complete the services agreed to in the contract with the client is subject to liability under breach of contract.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

The six defenses that the auditors could

Question 6

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

Accepted Answer

A)  Are responsible for ensuring that sufficient internal controls are maintained. 
B)  Should immediately report any discovered violation of the FCPA to the client's management. 
C)  Should verify compliance with corporate codes of conduct. 
D)  Are not subject to any penalties. 
A)  Are responsible for ensuring that sufficient internal controls are maintained. 
B)  Should immediately report any discovered violation of the FCPA to the client's management. 
C)  Should verify compliance with corporate codes of conduct. 
D)  Are not subject to any penalties.

Question 7

When performing an audit,a CPA

Accepted Answer

A)  Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances. 
B)  Must strictly adhere to generally accepted accounting principles. 
C)  Is strictly liable for failing to discover client fraud. 
D)  Is not liable under any legal standard unless the CPA commits gross negligence or intentionally disregards generally accepted auditing standards. 
A)  Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances. 
B)  Must strictly adhere to generally accepted accounting principles. 
C)  Is strictly liable for failing to discover client fraud. 
D)  Is not liable under any legal standard unless the CPA commits gross negligence or intentionally disregards generally accepted auditing standards.

Question 8

To prevail in a suit alleging negligence,a third party must prove that the auditor had a duty to the auditor's client to exercise due care.

Accepted Answer

A) True 
 B)False

Question 9

The Sarbanes-Oxley Act enhances prosecutorial tools available in major fraud cases by

Accepted Answer

A)  Expanding laws against fraud and obstruction of justice. 
B)  Increasing criminal penalties for fraud and its cover-up. 
C)  Strengthening sentencing guidelines applicable to large-scale frauds. 
D)  All of the above are true. 
A)  Expanding laws against fraud and obstruction of justice. 
B)  Increasing criminal penalties for fraud and its cover-up. 
C)  Strengthening sentencing guidelines applicable to large-scale frauds. 
D)  All of the above are true.

Question 10

An auditor can be held criminally liable for

Accepted Answer

A)  Illegal acts under common law. 
B)  Illegal acts under statutory law. 
C)  Negligent acts when the third party has privity status. 
D)  Tort of contract for failing to follow due professional care. 
A)  Illegal acts under common law. 
B)  Illegal acts under statutory law. 
C)  Negligent acts when the third party has privity status. 
D)  Tort of contract for failing to follow due professional care.

Question 11

Auditors can be held liable under two classes of law when sued by clients,investors,creditors,or the government.Identify and briefly explain both classes of law.

Accepted Answer

Common law includes case law developed o

Question 12

Which of the following elements,if present,would support a finding of constructive fraud on the part of a CPA?

Accepted Answer

A)  Gross negligence in applying generally accepted auditing standards. 
B)  Ordinary negligence in applying generally accepted accounting principles. 
C)  Identified third party users. 
D)  Scienter. 
A)  Gross negligence in applying generally accepted auditing standards. 
B)  Ordinary negligence in applying generally accepted accounting principles. 
C)  Identified third party users. 
D)  Scienter.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Common law requires the auditor perform professional services with due care.

Accepted Answer

A) True 
 B)False

Question 15

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 16

A CPA will most likely be negligent when the CPA fails to

Accepted Answer

A)  Correct errors discovered in the CPA's previously issued audit reports. 
B)  Detect all of a client's fraudulent activities. 
C)  Include a negligence disclaimer in the CPA's engagement letter. 
D)  Warn a client's customers of embezzlement by the client's employees. 
A)  Correct errors discovered in the CPA's previously issued audit reports. 
B)  Detect all of a client's fraudulent activities. 
C)  Include a negligence disclaimer in the CPA's engagement letter. 
D)  Warn a client's customers of embezzlement by the client's employees.

Question 17

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,aud

Question 18

While conducting an audit,Larson Associates,CPAs,failed to detect material misstatements included in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client.Larson knew that its opinion and the financial statements would be used for this purpose.Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?

Accepted Answer

A)  The purchaser must prove that Larson was negligent in conducting the audit. 
B)  The purchaser must prove that Larson knew of the material misstatements. 
C)  Larson will not be liable if it had reasonable grounds, based on work performed, to believe the financial statements were accurate. 
D)  Larson will be liable unless the purchaser did not rely on the financial statements. 
A)  The purchaser must prove that Larson was negligent in conducting the audit. 
B)  The purchaser must prove that Larson knew of the material misstatements. 
C)  Larson will not be liable if it had reasonable grounds, based on work performed, to believe the financial statements were accurate. 
D)  Larson will be liable unless the purchaser did not rely on the financial statements.

Question 19

Under the liability provisions of Section 11 of the Securities Act of 1933,an auditor may help to establish the defense of due diligence if
I.The auditor performed an additional review of the audited statements to ensure that the statements were accurate as of the effective date of a registration statement.
II.The auditor complied with GAAS.

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 20

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.

An auditor can be guilty under federal statutory law if s/he was reckless in performance of her/his professional duties.

A CPA's duty of due care to a client most likely will be breached when a CPA

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

The auditor failing to complete the services agreed to in the contract with the client is subject to liability under breach of contract.

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.

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

When performing an audit,a CPA

To prevail in a suit alleging negligence,a third party must prove that the auditor had a duty to the auditor's client to exercise due care.

The Sarbanes-Oxley Act enhances prosecutorial tools available in major fraud cases by

An auditor can be held criminally liable for

Auditors can be held liable under two classes of law when sued by clients,investors,creditors,or the government.Identify and briefly explain both classes of law.

Which of the following elements,if present,would support a finding of constructive fraud on the part of a CPA?

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

Common law requires the auditor perform professional services with due care.

A CPA will most likely be negligent when the CPA fails to

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 within the class of foreseen users of an accountant's work product?

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

Assurance,Attestation,and Internal Auditing Services

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

Filters

Exam 20: Legal Liability

An auditor can be guilty under federal statutory law if s/he was reckless in performance of her/his professional duties.

A CPA's duty of due care to a client most likely will be breached when a CPA

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

The auditor failing to complete the services agreed to in the contract with the client is subject to liability under breach of contract.

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.

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

When performing an audit,a CPA

To prevail in a suit alleging negligence,a third party must prove that the auditor had a duty to the auditor's client to exercise due care.

The Sarbanes-Oxley Act enhances prosecutorial tools available in major fraud cases by

An auditor can be held criminally liable for

Auditors can be held liable under two classes of law when sued by clients,investors,creditors,or the government.Identify and briefly explain both classes of law.

Which of the following elements,if present,would support a finding of constructive fraud on the part of a CPA?

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

Common law requires the auditor perform professional services with due care.

A CPA will most likely be negligent when the CPA fails to

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 within the class of foreseen users of an accountant's work product?

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

Assurance,Attestation,and Internal Auditing Services

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

Filters