Question 1

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was ________.

Accepted Answer

A)  Dupuis v. Pan American Mines 
B)  Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. 
C)  Caparo Industries PLC.v. Dickman et al. 
D)  Haig v. Bamford et al. 
A)  Dupuis v. Pan American Mines 
B)  Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. 
C)  Caparo Industries PLC.v. Dickman et al. 
D)  Haig v. Bamford et al.

Question 2

A defendant accountant will likely first try to argue that it had no privity relationship with the plaintiff.

Accepted Answer

A) True 
 B)False

Question 3

During a review engagement, CPA discovers that the gross margin has increased by 20% over the last few years. To avoid potential liability due to possibly misstated financial statements, what should CPA do?

Accepted Answer

A)  Correct the gross margin to be consistent with prior years. 
B)  Obtain additional information to correct or substantiate the figures. 
C)  No additional work is required for review engagements. 
D)  Downgrade the assignment to a compilation engagement. 
A)  Correct the gross margin to be consistent with prior years. 
B)  Obtain additional information to correct or substantiate the figures. 
C)  No additional work is required for review engagements. 
D)  Downgrade the assignment to a compilation engagement.

Question 4

When an auditor is found guilty of a fraudulent misrepresentation, there is liability owed to ________.

Accepted Answer

A)  third parties with privity and contracted parties 
B)  any party that suffered a loss 
C)  shareholders only 
D)  all parties with privity 
A)  third parties with privity and contracted parties 
B)  any party that suffered a loss 
C)  shareholders only 
D)  all parties with privity

Question 5

Negligence is the failure to perform a duty with the requisite standard of care. What are the four elements of negligence and what would be an auditor's defence against them?

Accepted Answer

There existed a legal duty of care to th

Question 6

If a professional accountant is able to reasonably foresee a limited class of potential users for his or her work, liability may then be imposed for ________.

Accepted Answer

A)  ordinary negligence 
B)  constructive fraud 
C)  gross negligence 
D)  fraud 
A)  ordinary negligence 
B)  constructive fraud 
C)  gross negligence 
D)  fraud

Question 7

A relationship of direct involvement between parties to a contract is known as privity

Accepted Answer

A) True 
 B)False

Question 8

The OSC in Canada has powers to decide what is GAAP, similar to the SEC in the United States.

Accepted Answer

A) True 
 B)False

Question 9

Primary beneficiaries are third parties who have paid to have an audit performed.

Accepted Answer

A) True 
 B)False

Question 10

Even in a review engagement, the accountant cannot merely accept client-supplied information that appears to be false or misleading.

Accepted Answer

A) True 
 B)False

Question 11

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Accepted Answer

A) True 
 B)False

Question 12

Due professional care occurs when an auditor observes all the rules of conduct for the profession and applies all the standards of the profession.

Accepted Answer

A) True 
 B)False

Question 13

When referring to public accountants, what does breach of contract mean?

Accepted Answer

A)  A lawsuit involving a client and an auditor. 
B)  Services were not performed as agreed. 
C)  Auditor bills clients for extra services. 
D)  There is no engagement letter signed by the client. 
A)  A lawsuit involving a client and an auditor. 
B)  Services were not performed as agreed. 
C)  Auditor bills clients for extra services. 
D)  There is no engagement letter signed by the client.

Question 14

A reasonably foreseeable third party would include current shareholders but not lenders.

Accepted Answer

A) True 
 B)False

Question 15

In contrast to its concern for the quality of accounting principles, the SEC's involvement in auditing standards and procedural matters has been minimal since the developments of the McKesson and Robbins affair.

Accepted Answer

A) True 
 B)False

Question 16

Who would be considered a reasonably foreseeable third party for an auditor?

Accepted Answer

A reasonably foreseeable third party wou

Question 17

Under common law, a plaintiff who is owed a legal duty of care must prove reliance on misleading statements and damages suffered because of that reliance.

Accepted Answer

A) True 
 B)False

Question 18

What are the legal liabilities of professional accountants under the common law?

Accepted Answer

Accountants are liable under the common

Question 19

The United States was the first nation to make it illegal to bribe foreign officials. This was implemented through the landmark Foreign Corrupt Practices Act of 1977 (FCPA).

Accepted Answer

A) True 
 B)False

Question 20

Sun Corp. approved a merger plan with Cord Corp. One of the factors that led to the approval of the merger was the fact that the Cord's financial statements were audited by Frank & Co. CPAs. Sun had engaged Frank to audit Cord's financial statements. While performing the audit, Frank failed to discover certain irregularities that later caused Sun to suffer substantial losses. For the lawsuit to be successful, Sun must prove that Frank & Co., CPAs ________.

Accepted Answer

A)  knew of the irregularities 
B)  failed to exercise due care 
C)  was grossly negligent 
D)  acted with scienter 
A)  knew of the irregularities 
B)  failed to exercise due care 
C)  was grossly negligent 
D)  acted with scienter

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was ________.

A defendant accountant will likely first try to argue that it had no privity relationship with the plaintiff.

During a review engagement, CPA discovers that the gross margin has increased by 20% over the last few years. To avoid potential liability due to possibly misstated financial statements, what should CPA do?

When an auditor is found guilty of a fraudulent misrepresentation, there is liability owed to ________.

Negligence is the failure to perform a duty with the requisite standard of care. What are the four elements of negligence and what would be an auditor's defence against them?

If a professional accountant is able to reasonably foresee a limited class of potential users for his or her work, liability may then be imposed for ________.

A relationship of direct involvement between parties to a contract is known as privity

The OSC in Canada has powers to decide what is GAAP, similar to the SEC in the United States.

Primary beneficiaries are third parties who have paid to have an audit performed.

Even in a review engagement, the accountant cannot merely accept client-supplied information that appears to be false or misleading.

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Due professional care occurs when an auditor observes all the rules of conduct for the profession and applies all the standards of the profession.

When referring to public accountants, what does breach of contract mean?

A reasonably foreseeable third party would include current shareholders but not lenders.

In contrast to its concern for the quality of accounting principles, the SEC's involvement in auditing standards and procedural matters has been minimal since the developments of the McKesson and Robbins affair.

Who would be considered a reasonably foreseeable third party for an auditor?

Under common law, a plaintiff who is owed a legal duty of care must prove reliance on misleading statements and damages suffered because of that reliance.

What are the legal liabilities of professional accountants under the common law?

The United States was the first nation to make it illegal to bribe foreign officials. This was implemented through the landmark Foreign Corrupt Practices Act of 1977 (FCPA).

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Other Professional Accounting Services and Reports, Including Fraud

Filters

Exam 20: Legal Liability Cases

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was ________.

A defendant accountant will likely first try to argue that it had no privity relationship with the plaintiff.

During a review engagement, CPA discovers that the gross margin has increased by 20% over the last few years. To avoid potential liability due to possibly misstated financial statements, what should CPA do?

When an auditor is found guilty of a fraudulent misrepresentation, there is liability owed to ________.

Negligence is the failure to perform a duty with the requisite standard of care. What are the four elements of negligence and what would be an auditor's defence against them?

If a professional accountant is able to reasonably foresee a limited class of potential users for his or her work, liability may then be imposed for ________.

A relationship of direct involvement between parties to a contract is known as privity

The OSC in Canada has powers to decide what is GAAP, similar to the SEC in the United States.

Primary beneficiaries are third parties who have paid to have an audit performed.

Even in a review engagement, the accountant cannot merely accept client-supplied information that appears to be false or misleading.

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Due professional care occurs when an auditor observes all the rules of conduct for the profession and applies all the standards of the profession.

When referring to public accountants, what does breach of contract mean?

A reasonably foreseeable third party would include current shareholders but not lenders.

In contrast to its concern for the quality of accounting principles, the SEC's involvement in auditing standards and procedural matters has been minimal since the developments of the McKesson and Robbins affair.

Who would be considered a reasonably foreseeable third party for an auditor?

Under common law, a plaintiff who is owed a legal duty of care must prove reliance on misleading statements and damages suffered because of that reliance.

What are the legal liabilities of professional accountants under the common law?

The United States was the first nation to make it illegal to bribe foreign officials. This was implemented through the landmark Foreign Corrupt Practices Act of 1977 (FCPA).

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Other Professional Accounting Services and Reports, Including Fraud

Filters