Question 1

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 2

Which landmark Canadian case confirmed that auditors owe a duty to third parties where they have "actual knowledge of the limited class that will use and rely on the statements"?

Accepted Answer

A) Hedley Byrne v.Heller. 
B) Haig v.Banford. 
C) Ultramares v.Touche. 
D) Foss v.Harbottle. 
A) Hedley Byrne v.Heller. 
B) Haig v.Banford. 
C) Ultramares v.Touche. 
D) Foss v.Harbottle.

Question 3

A CPA may be liable to any purchaser of a security if the CPA issued a clean opinion on materially misstated financial statements.The CPA usually will not be liable to the purchaser ________.

Accepted Answer

A) if the purchaser is guilty of contributory negligence 
B) if the CPA can prove due care in the audit 
C) unless the purchaser can prove privity with the CPA 
D) unless the purchaser can prove scienter on the part of the CPA 
A) if the purchaser is guilty of contributory negligence 
B) if the CPA can prove due care in the audit 
C) unless the purchaser can prove privity with the CPA 
D) unless the purchaser can prove scienter on the part of the CPA

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

While conducting an audit,Larson Associates CPAs failed to detect a material misstatement 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.In a suit by a purchaser against Larson for common law negligence,Larson's best defence would be that the ________.

Accepted Answer

A) audit was conducted in accordance with generally accepted auditing standards 
B) client was aware of the misstatements 
C) purchaser was not in privity of contract with Larson 
D) identity of the purchaser was not known to Larson at the time of the audit 
A) audit was conducted in accordance with generally accepted auditing standards 
B) client was aware of the misstatements 
C) purchaser was not in privity of contract with Larson 
D) identity of the purchaser was not known to Larson at the time of the audit

Question 8

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 9

Explain why the decision rendered in Hercules Managements Ltd.et al.v.Ernst & Young e al (the Hercules Management Case)was considered so controversial.

Accepted Answer

The Hercules Management Case reversed th

Question 10

Accountants are liable under the common law for breach of contract if they fail to fulfill their contractual obligations with their clients and for negligence if they fail to exercise due care in the performance of services for their clients

Accepted Answer

A) True 
 B)False

Question 11

In a common law action against an accountant,all that a plaintiff must prove is that the accountant was negligent,grossly negligent,fraudulent,or otherwise responsible for the damages claimed.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Which of the following statements the Foreign Corrupt Practices Act of 1977 (the FCPA)and its effect on the accounting profession is FALSE?

Accepted Answer

A) The FCPA requires companies registered with the SEC to devise and maintain a system of internal accounting control. 
B) When a company's accountants are taken to court with FCPA violations,the case is litigated (decided by a judge). 
C) The FCPA requires companies registered with the SEC to keep books,records,and accounts that,in reasonable detail,accurately and fairly reflect the transactions and dispositions of the company's assets. 
D) The auditor of an entity subject its provisions can also be held directly responsible under the provisions of the FCPA. 
A) The FCPA requires companies registered with the SEC to devise and maintain a system of internal accounting control. 
B) When a company's accountants are taken to court with FCPA violations,the case is litigated (decided by a judge). 
C) The FCPA requires companies registered with the SEC to keep books,records,and accounts that,in reasonable detail,accurately and fairly reflect the transactions and dispositions of the company's assets. 
D) The auditor of an entity subject its provisions can also be held directly responsible under the provisions of the FCPA.

Question 14

Smith & Smith,CPAs,audit the financial statements of ABC Company,who require audited financial statements be provided to Acme Bank,who provides ABC Company with an operating line and several loans.Smith & Smith are aware of Acme Bank's reliance on their audit report to decide on granting financing to ABC Company.ABC's management also uses the audited statements to make management decisions and sometimes provide copies to their suppliers to evaluate ABC's credit.In this scenario,who is (are)the primary beneficiary (beneficiaries)of Smith & Smith's audit of ABC Company's financial statements?

Accepted Answer

A) Acme Bank. 
B) ABC Company's shareholders. 
C) ABC Company's management. 
D) Suppliers to ABC Company. 
A) Acme Bank. 
B) ABC Company's shareholders. 
C) ABC Company's management. 
D) Suppliers to ABC Company.

Question 15

The Securities and Exchange Commission in the United States will hold a negligent auditor liable under common law.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is NOT an element of a successful negligence action against auditors?

Accepted Answer

A) There must be proof that damage resulted. 
B) The plaintiff must be a known user of the financial statements. 
C) There must be a legal duty of care to the plaintiff. 
D) There must be a reasonable connection between the breach of duty of care and resulting losses. 
A) There must be proof that damage resulted. 
B) The plaintiff must be a known user of the financial statements. 
C) There must be a legal duty of care to the plaintiff. 
D) There must be a reasonable connection between the breach of duty of care and resulting losses.

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

Which landmark Canadian case confirmed that auditors owe a duty to third parties where they have "actual knowledge of the limited class that will use and rely on the statements"?

A CPA may be liable to any purchaser of a security if the CPA issued a clean opinion on materially misstated financial statements.The CPA usually will not be liable to the purchaser ________.

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

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

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

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.

Explain why the decision rendered in Hercules Managements Ltd.et al.v.Ernst & Young e al (the Hercules Management Case)was considered so controversial.

Accountants are liable under the common law for breach of contract if they fail to fulfill their contractual obligations with their clients and for negligence if they fail to exercise due care in the performance of services for their clients

In a common law action against an accountant,all that a plaintiff must prove is that the accountant was negligent,grossly negligent,fraudulent,or otherwise responsible for the damages claimed.

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?

Which of the following statements the Foreign Corrupt Practices Act of 1977 (the FCPA)and its effect on the accounting profession is FALSE?

The Securities and Exchange Commission in the United States will hold a negligent auditor liable under common law.

Which of the following is NOT an element of a successful negligence action against auditors?

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 the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Other Professional Accounting Services and Reports, including Fraud Auditing

Filters

Exam 20: Legal Liability Cases

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

Which landmark Canadian case confirmed that auditors owe a duty to third parties where they have "actual knowledge of the limited class that will use and rely on the statements"?

A CPA may be liable to any purchaser of a security if the CPA issued a clean opinion on materially misstated financial statements.The CPA usually will not be liable to the purchaser ________.

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

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

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

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.

Explain why the decision rendered in Hercules Managements Ltd.et al.v.Ernst & Young e al (the Hercules Management Case)was considered so controversial.

Accountants are liable under the common law for breach of contract if they fail to fulfill their contractual obligations with their clients and for negligence if they fail to exercise due care in the performance of services for their clients

In a common law action against an accountant,all that a plaintiff must prove is that the accountant was negligent,grossly negligent,fraudulent,or otherwise responsible for the damages claimed.

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?

Which of the following statements the Foreign Corrupt Practices Act of 1977 (the FCPA)and its effect on the accounting profession is FALSE?

The Securities and Exchange Commission in the United States will hold a negligent auditor liable under common law.

Which of the following is NOT an element of a successful negligence action against auditors?

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 the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Other Professional Accounting Services and Reports, including Fraud Auditing

Filters