Exam 20: Legal Liability Cases

In the London v.General Bank (1895)case,it was held that the auditor takes complete responsibility for detecting fraud in a set of financial statements they are auditing.

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 ________.

Constructive fraud is characterized by an intentional act designed to deceive,mislead or injure the rights of another person.

Under the common law,in a lawsuit concerning auditor liability,the primary beneficiary is _______.

Which of the following statements represents an audit failure?

Beckler & Associates CPAs issued an unqualified opinion on the financial statements of Queen Ltd.The financial statements contained misstatements that resulted in a material overstatement of Queen's net worth.Queen provided the audited financial statements to Mac Bank in connection with a loan made by Mac to Queen.Beckler knew that the financial statements would be provided to Mac.Queen defaulted on the loan.Mac sued Beckler to recover the losses associated with Queen's default.Which of the following must Mac prove in order to recover? I.Beckler was negligent in conducting the audit. II)Mac relied on the financial statements.

To better protect themselves from legal liability,auditors ought to take all of the following precautions in their engagements,EXCEPT FOR:

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

Which important Canadian case concluded that the auditor's liability extends to those third parties to whom the auditor has actual knowledge of the limited class that will use and rely on the statements"?

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

Accountants are not liable for misstatements in compilation or review engagements.

Some people argue that there is a legal liability crisis for auditors in Canada.Do you agree or disagree? Provide some evidence supporting this argument,and some evidence contradicting this argument.

A plaintiff,who is a normal trade creditor,can collect damages under common law for negligence from the corporation's auditors.

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).

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

If the courts conclude that the auditor is associated with misleading financial statements,even if these statements are in conformity with GAAP,they may conclude that the auditors are fraudulently negligent.

While conducting an audit,Larson & Larson Chartered Professional Accountants failed to detect a material misstatement in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a 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?

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

The Ultramares doctrine established that auditor liability does not extend to third parties in cases involving ordinary negligence.

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.