Question 1

The concept of the third-party beneficiary test was established by which court case?

Accepted Answer

A) Credit Alliance Corp.v.Arthur Andersen & Co. 
B) Ultramares Corp.v.Touche. 
C) Citizens State Bank v.Timm,Schmidt,& Co. 
D) Rosenblum v.Adler. 
A) Credit Alliance Corp.v.Arthur Andersen & Co. 
B) Ultramares Corp.v.Touche. 
C) Citizens State Bank v.Timm,Schmidt,& Co. 
D) Rosenblum v.Adler. B

Question 2

Which of the following is not an incentive for filing lawsuits against audit firms?

Accepted Answer

A) Class action lawsuits. 
B) Increased complexity of accounting standards. 
C) Contingent-fee-based compensation for law firms. 
D) Joint and several liability doctrine. 
A) Class action lawsuits. 
B) Increased complexity of accounting standards. 
C) Contingent-fee-based compensation for law firms. 
D) Joint and several liability doctrine. B

Question 3

Compliance with GAAP was an unsuccessful defense in which of the following court cases?

Accepted Answer

A) Credit Alliance v.Arthur Andersen & Co. 
B) Ultramares Corp.v.Touche. 
C) Ernst and Ernst v.Hochfelder. 
D) Herzfeld v.Laventhol,Krekstein,Horwath & Horwath. 
A) Credit Alliance v.Arthur Andersen & Co. 
B) Ultramares Corp.v.Touche. 
C) Ernst and Ernst v.Hochfelder. 
D) Herzfeld v.Laventhol,Krekstein,Horwath & Horwath. D

Question 4

Types of Law Relevant to Auditors' Legal Liability What are the three types of law that are relevant to auditors' legal liability? Explain the causes of legal action under each type.

Accepted Answer

The three types of law most relevant to

Question 5

An identified user is a specific third party named in the audit engagement letter as a user of the audited financial statements.

Accepted Answer

A) True 
 B)False

Question 6

Failing to provide the audit report on time is a potential cause of action against the auditor for breach of contract.

Accepted Answer

A) True 
 B)False

Question 7

Expectations Gap What is the expectations gap?

Accepted Answer

Some investors mistakenly view the unqua

Question 8

Under the Securities Act of 1933,the accuracy of the registration statement is determined as of the date normal audit work is completed,which may be several months before the effective date of the registration statement.

Accepted Answer

A) True 
 B)False

Question 9

Liability based on federal securities law is known as which type of law?

Accepted Answer

A) Common law. 
B) Contract law. 
C) Statutory law. 
D) Commercial law. 
A) Common law. 
B) Contract law. 
C) Statutory law. 
D) Commercial law.

Question 10

Which of the following statements describes the expectations gap as it relates to audited financial statements?

Accepted Answer

A) Investors believe that an unqualified audit report guarantees that an investment in the audited company is risk- free. 
B) Investors believe that an unqualified audit report is an insurance policy against losses from a risky investment. 
C) Investors believe they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements. 
D) All of the above. 
A) Investors believe that an unqualified audit report guarantees that an investment in the audited company is risk- free. 
B) Investors believe that an unqualified audit report is an insurance policy against losses from a risky investment. 
C) Investors believe they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements. 
D) All of the above.

Question 11

The expectations gap represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

Accepted Answer

A) True 
 B)False

Question 12

An audit failure occurs when an audit firm issues an inaccurate audit opinion and fails to comply with auditing standards.

Accepted Answer

A) True 
 B)False

Question 13

Ordinary negligence is the failure to exercise minimal care.

Accepted Answer

A) True 
 B)False

Question 14

Claims against auditors based on the deep pocket theory are most likely to occur in courts where damages are based on proportionate liability.

Accepted Answer

A) True 
 B)False

Question 15

Class action lawsuits are designed to encourage multiple lawsuits arising from the same claim.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would be the first form filed with the SEC describing a major change in corporate governance?

Accepted Answer

A) 8-K 
B) 8-Q 
C) 10-K 
D) 10-Q 
A) 8-K 
B) 8-Q 
C) 10-K 
D) 10-Q

Question 17

Which of the following is not a basis for a third-party lawsuit against an auditor?

Accepted Answer

A) Common law. 
B) Breach of contract. 
C) Gross negligence. 
D) Fraud. 
A) Common law. 
B) Breach of contract. 
C) Gross negligence. 
D) Fraud.

Question 18

Gross negligence is a failure to use even minimal care,a reckless disregard for the truth,or reckless behavior.

Accepted Answer

A) True 
 B)False

Question 19

A foreseeable user of audited financial statements is a member of a limited class of users for a particular transaction.

Accepted Answer

A) True 
 B)False

Question 20

Contingent fees for lawyers serve as a deterrent to lawsuits filed against audit firms.

Accepted Answer

A) True 
 B)False

The concept of the third-party beneficiary test was established by which court case?

Which of the following is not an incentive for filing lawsuits against audit firms?

Compliance with GAAP was an unsuccessful defense in which of the following court cases?

Types of Law Relevant to Auditors' Legal Liability What are the three types of law that are relevant to auditors' legal liability? Explain the causes of legal action under each type.

An identified user is a specific third party named in the audit engagement letter as a user of the audited financial statements.

Failing to provide the audit report on time is a potential cause of action against the auditor for breach of contract.

Expectations Gap What is the expectations gap?

Under the Securities Act of 1933,the accuracy of the registration statement is determined as of the date normal audit work is completed,which may be several months before the effective date of the registration statement.

Liability based on federal securities law is known as which type of law?

Which of the following statements describes the expectations gap as it relates to audited financial statements?

The expectations gap represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

An audit failure occurs when an audit firm issues an inaccurate audit opinion and fails to comply with auditing standards.

Ordinary negligence is the failure to exercise minimal care.

Claims against auditors based on the deep pocket theory are most likely to occur in courts where damages are based on proportionate liability.

Class action lawsuits are designed to encourage multiple lawsuits arising from the same claim.

Which of the following would be the first form filed with the SEC describing a major change in corporate governance?

Which of the following is not a basis for a third-party lawsuit against an auditor?

Gross negligence is a failure to use even minimal care,a reckless disregard for the truth,or reckless behavior.

A foreseeable user of audited financial statements is a member of a limited class of users for a particular transaction.

Contingent fees for lawyers serve as a deterrent to lawsuits filed against audit firms.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters

Exam 4: Professional Legal Liability

The concept of the third-party beneficiary test was established by which court case?

Which of the following is not an incentive for filing lawsuits against audit firms?

Compliance with GAAP was an unsuccessful defense in which of the following court cases?

Types of Law Relevant to Auditors' Legal Liability What are the three types of law that are relevant to auditors' legal liability? Explain the causes of legal action under each type.

An identified user is a specific third party named in the audit engagement letter as a user of the audited financial statements.

Failing to provide the audit report on time is a potential cause of action against the auditor for breach of contract.

Expectations Gap What is the expectations gap?

Under the Securities Act of 1933,the accuracy of the registration statement is determined as of the date normal audit work is completed,which may be several months before the effective date of the registration statement.

Liability based on federal securities law is known as which type of law?

Which of the following statements describes the expectations gap as it relates to audited financial statements?

The expectations gap represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

An audit failure occurs when an audit firm issues an inaccurate audit opinion and fails to comply with auditing standards.

Ordinary negligence is the failure to exercise minimal care.

Claims against auditors based on the deep pocket theory are most likely to occur in courts where damages are based on proportionate liability.

Class action lawsuits are designed to encourage multiple lawsuits arising from the same claim.

Which of the following would be the first form filed with the SEC describing a major change in corporate governance?

Which of the following is not a basis for a third-party lawsuit against an auditor?

Gross negligence is a failure to use even minimal care,a reckless disregard for the truth,or reckless behavior.

A foreseeable user of audited financial statements is a member of a limited class of users for a particular transaction.

Contingent fees for lawyers serve as a deterrent to lawsuits filed against audit firms.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters