Question 1

Professional auditing standards and financial accounting principles are used by courts as criteria for determining an auditor's duty not to be negligent.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following may an auditor use as a defense under the Securities Act of 1933?

Accepted Answer

A) Contributory negligence. 
B) Scienter. 
C) Due care. 
D) Immaterial loss. 
A) Contributory negligence. 
B) Scienter. 
C) Due care. 
D) Immaterial loss.

Question 3

Both the 1933 and 1934 Securities Acts and the Sarbanes-Oxley Act of 2002 provide for criminal actions against auditors.

Accepted Answer

A) True 
 B)False

Question 4

A jury has determined that Jason Pruitt,CPA,is 20% at fault for losses suffered by investors who relied on materially misstated financial statements.The jury found that Pruitt's co-defendants,the client company and the company's CEO,are each 40% at fault.The company is bankrupt,and only Pruitt and the CEO have adequate resources to pay damages.Under joint and several liability,what is the likely percentage of damages that Pruitt will pay?

Accepted Answer

A) 20%. 
B) 20% plus a proportionate share of damages attributed to the company. 
C) 20% plus 50% of damages attributed to the company. 
D) 100% of damages. 
A) 20%. 
B) 20% plus a proportionate share of damages attributed to the company. 
C) 20% plus 50% of damages attributed to the company. 
D) 100% of damages.

Question 5

Generally,auditors can be sued for breach of contract by which of the following parties?

Accepted Answer

A) Shareholders. 
B) Third parties other than shareholders. 
C) Clients. 
D) All of the above. 
A) Shareholders. 
B) Third parties other than shareholders. 
C) Clients. 
D) All of the above.

Question 6

Auditors can be held liable to third parties for fraud,but not for ordinary or gross negligence.

Accepted Answer

A) True 
 B)False

Question 7

The occurrence of an important event,such as a change in auditors,is reported to the SEC by filing Form 8-K.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding liability doctrines is not true?

Accepted Answer

A) Under proportionate liability,a defendant's share of damages depends on the degree of fault determined by the judge or jury. 
B) Joint and several liability provides more protection to users who experience losses from relying on misstated financial statements. 
C) Proportionate liability generally applies to lawsuits filed in federal court. 
D) Joint and several liability cannot be applied in class-action lawsuits. 
A) Under proportionate liability,a defendant's share of damages depends on the degree of fault determined by the judge or jury. 
B) Joint and several liability provides more protection to users who experience losses from relying on misstated financial statements. 
C) Proportionate liability generally applies to lawsuits filed in federal court. 
D) Joint and several liability cannot be applied in class-action lawsuits.

Question 9

Auditor Defenses to Breach of Contract Suits A client seeking to recover damages from an auditor for breach of contract in an action based on negligence must show that the auditor had a duty not to be negligent.Identify at least three defenses an auditor can use against a breach of contract lawsuit.

Accepted Answer

Defenses an auditor might use in a breac

Question 10

To win a lawsuit against an auditor,third parties generally have to prove which of the following?

Accepted Answer

A) The parties suffered a loss. 
B) A loss occurred due to reliance on misleading financial statements. 
C) The auditor knew,or should have known,financial statements were misleading. 
D) All of the above. 
A) The parties suffered a loss. 
B) A loss occurred due to reliance on misleading financial statements. 
C) The auditor knew,or should have known,financial statements were misleading. 
D) All of the above.

Question 11

Fraud occurs when there is an intentional concealment or an unintentional misrepresentation of a material fact that causes damage to those deceived.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a potential cause for action against the auditor for breach of contract?

Accepted Answer

A) Withdrawing from an audit engagement due to unresolved disagreements with management. 
B) Failing to discover a material error in the financial statements. 
C) Violating client confidentiality. 
D) Failing to provide the audit report on time. 
A) Withdrawing from an audit engagement due to unresolved disagreements with management. 
B) Failing to discover a material error in the financial statements. 
C) Violating client confidentiality. 
D) Failing to provide the audit report on time.

Question 13

Which is the best definition of scienter?

Accepted Answer

A) A wrongful state of mind when making a misrepresentation. 
B) A causal connection between a misstatement and a material loss. 
C) A material omission of facts. 
D) Fraudulent conduct in the purchase of a security. 
A) A wrongful state of mind when making a misrepresentation. 
B) A causal connection between a misstatement and a material loss. 
C) A material omission of facts. 
D) Fraudulent conduct in the purchase of a security.

Question 14

Liability concepts developed through court decisions are referred to as statutory law.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following has contributed to a decrease in federal class actions involving audit firms as co-defendants over the last decade?

Accepted Answer

A) Supreme Court decisions in Janus Capital Group,Inc. ,and Stoneridge Investment Partners. 
B) Federal restrictions on contingent fees for lawyers in lawsuits filed under the Securities Act of 1934. 
C) A growing expectations gap causing investors to view audit reports as insurance against losses. 
D) All of the above. 
A) Supreme Court decisions in Janus Capital Group,Inc. ,and Stoneridge Investment Partners. 
B) Federal restrictions on contingent fees for lawyers in lawsuits filed under the Securities Act of 1934. 
C) A growing expectations gap causing investors to view audit reports as insurance against losses. 
D) All of the above.

Question 16

Under common law,liability concepts are developed through court decisions based on ordinary negligence,gross negligence,or fraud.

Accepted Answer

A) True 
 B)False

Question 17

Under common law,which of the following is a basis for litigation against an auditor for failure to meet professional standards and responsibilities?

Accepted Answer

A) Ordinary negligence 
B) Gross negligence 
C) Fraud 
D) All of the above. 
A) Ordinary negligence 
B) Gross negligence 
C) Fraud 
D) All of the above.

Question 18

Under joint and several liability,users who experience losses from reliance on materially misstated financial statements may recover full damages from any defendant,including the audit firm,regardless of the level of fault for that defendant.

Accepted Answer

A) True 
 B)False

Question 19

A tort is a civil wrong,other than a breach of contract,based on ordinary negligence,gross negligence,or fraud.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following documents must be filed with the SEC under the Securities Act of 1933 before a company can issue new securities to the public?

Accepted Answer

A) Form 10-K. 
B) Form 10-Q. 
C) Prospectus. 
D) All of the above. 
A) Form 10-K. 
B) Form 10-Q. 
C) Prospectus. 
D) All of the above.

Professional auditing standards and financial accounting principles are used by courts as criteria for determining an auditor's duty not to be negligent.

Which of the following may an auditor use as a defense under the Securities Act of 1933?

Both the 1933 and 1934 Securities Acts and the Sarbanes-Oxley Act of 2002 provide for criminal actions against auditors.

Generally,auditors can be sued for breach of contract by which of the following parties?

Auditors can be held liable to third parties for fraud,but not for ordinary or gross negligence.

The occurrence of an important event,such as a change in auditors,is reported to the SEC by filing Form 8-K.

Which of the following statements regarding liability doctrines is not true?

Auditor Defenses to Breach of Contract Suits A client seeking to recover damages from an auditor for breach of contract in an action based on negligence must show that the auditor had a duty not to be negligent.Identify at least three defenses an auditor can use against a breach of contract lawsuit.

To win a lawsuit against an auditor,third parties generally have to prove which of the following?

Fraud occurs when there is an intentional concealment or an unintentional misrepresentation of a material fact that causes damage to those deceived.

Which of the following is not a potential cause for action against the auditor for breach of contract?

Which is the best definition of scienter?

Liability concepts developed through court decisions are referred to as statutory law.

Which of the following has contributed to a decrease in federal class actions involving audit firms as co-defendants over the last decade?

Under common law,liability concepts are developed through court decisions based on ordinary negligence,gross negligence,or fraud.

Under common law,which of the following is a basis for litigation against an auditor for failure to meet professional standards and responsibilities?

Under joint and several liability,users who experience losses from reliance on materially misstated financial statements may recover full damages from any defendant,including the audit firm,regardless of the level of fault for that defendant.

A tort is a civil wrong,other than a breach of contract,based on ordinary negligence,gross negligence,or fraud.

Which of the following documents must be filed with the SEC under the Securities Act of 1933 before a company can issue new securities to the public?

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

Professional auditing standards and financial accounting principles are used by courts as criteria for determining an auditor's duty not to be negligent.

Which of the following may an auditor use as a defense under the Securities Act of 1933?

Both the 1933 and 1934 Securities Acts and the Sarbanes-Oxley Act of 2002 provide for criminal actions against auditors.

Generally,auditors can be sued for breach of contract by which of the following parties?

Auditors can be held liable to third parties for fraud,but not for ordinary or gross negligence.

The occurrence of an important event,such as a change in auditors,is reported to the SEC by filing Form 8-K.

Which of the following statements regarding liability doctrines is not true?

To win a lawsuit against an auditor,third parties generally have to prove which of the following?

Fraud occurs when there is an intentional concealment or an unintentional misrepresentation of a material fact that causes damage to those deceived.

Which of the following is not a potential cause for action against the auditor for breach of contract?

Which is the best definition of scienter?

Liability concepts developed through court decisions are referred to as statutory law.

Which of the following has contributed to a decrease in federal class actions involving audit firms as co-defendants over the last decade?

Under common law,liability concepts are developed through court decisions based on ordinary negligence,gross negligence,or fraud.

Under common law,which of the following is a basis for litigation against an auditor for failure to meet professional standards and responsibilities?

Under joint and several liability,users who experience losses from reliance on materially misstated financial statements may recover full damages from any defendant,including the audit firm,regardless of the level of fault for that defendant.

A tort is a civil wrong,other than a breach of contract,based on ordinary negligence,gross negligence,or fraud.

Which of the following documents must be filed with the SEC under the Securities Act of 1933 before a company can issue new securities to the public?

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