Question 1

The Rosenblum case ruling was of concern to the accounting profession because it implied that

Accepted Answer

A)  Full joint and several liability would be reinstated 
B)  All possible third party users of financial statements must be anticipated 
C)  The concept of contractual privity would no longer be important 
D)  Financial liability would occur when scienter was a factor 
A)  Full joint and several liability would be reinstated 
B)  All possible third party users of financial statements must be anticipated 
C)  The concept of contractual privity would no longer be important 
D)  Financial liability would occur when scienter was a factor

Question 2

Martha Stewart was sent to jail in the InClone Systems insider trading scandal because

Accepted Answer

A)  She acted on tip information to sell InClone stock prior to the FDA's announcement that it had rejected a company product 
B)  She tipped off a friend about the FDA's announcement that it had rejected a company product 
C)  She obstructed justice 
D)  She wears gaudy clothing 
A)  She acted on tip information to sell InClone stock prior to the FDA's announcement that it had rejected a company product 
B)  She tipped off a friend about the FDA's announcement that it had rejected a company product 
C)  She obstructed justice 
D)  She wears gaudy clothing

Question 3

A unique aspect of the DHB (Point Blank Solutions) case is that it deals with

Accepted Answer

A)  The complicity of outside directors and audit committee members in the fraud 
B)  A modified audit report that did not go far enough in identifying material weaknesses in the internal controls 
C)  Enforcement powers under Dodd-Frank 
D)  All of these 
A)  The complicity of outside directors and audit committee members in the fraud 
B)  A modified audit report that did not go far enough in identifying material weaknesses in the internal controls 
C)  Enforcement powers under Dodd-Frank 
D)  All of these

Question 4

The best way to minimize the penalty imposed on an organization under the Federal Sentencing Guidelines is to

Accepted Answer

A)  Have a chief ethics officer oversee the company's compliance with FSGFO 
B)  Have a code of conduct 
C)  Have an effective ethics and compliance program 
D)  Have an external audit of the organization's financial statements 
A)  Have a chief ethics officer oversee the company's compliance with FSGFO 
B)  Have a code of conduct 
C)  Have an effective ethics and compliance program 
D)  Have an external audit of the organization's financial statements

Question 5

Under the Private Securities Litigation Reform Act, if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should then report his/her conclusions to

Accepted Answer

A)  The Securities and Exchange Commission 
B)  The company's board of directors 
C)  The office of the controller/comptroller for the appropriate state 
D)  The Federal Bureau of Investigation 
A)  The Securities and Exchange Commission 
B)  The company's board of directors 
C)  The office of the controller/comptroller for the appropriate state 
D)  The Federal Bureau of Investigation

Question 6

Negligent nonfeasance would be said to occur when

Accepted Answer

A)  An auditor issues an unmodified opinion on financial statements he or she knows to be materially misstated 
B)  An auditor fails to use appropriate accounting procedures and thereby fails to discover a client's fraudulent practices 
C)  An auditor fails to report an instance of financial fraud to the SEC 
D)  An auditor intentionally skips parts of the audit plan to cut costs and increase profitability 
A)  An auditor issues an unmodified opinion on financial statements he or she knows to be materially misstated 
B)  An auditor fails to use appropriate accounting procedures and thereby fails to discover a client's fraudulent practices 
C)  An auditor fails to report an instance of financial fraud to the SEC 
D)  An auditor intentionally skips parts of the audit plan to cut costs and increase profitability

Question 7

Pfizer was investigated by the SEC for violating the FCPA because it allegedly

Accepted Answer

A)  Made improper payments to foreign officials to obtain regulatory and formulary approvals 
B)  Made improper payments to foreign officials to obtain sales 
C)  Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products 
D)  All of these 
A)  Made improper payments to foreign officials to obtain regulatory and formulary approvals 
B)  Made improper payments to foreign officials to obtain sales 
C)  Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products 
D)  All of these

Question 8

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that:

Accepted Answer

A)  Third parties that were "foreseeable" may sue for ordinary negligence 
B)  Third parties may sue if one of the parties in contractual privity allowed it to 
C)  Third parties may sue in the case of fraud or constructive fraud 
D)  Third parties who used the financial statements may sue 
A)  Third parties that were "foreseeable" may sue for ordinary negligence 
B)  Third parties may sue if one of the parties in contractual privity allowed it to 
C)  Third parties may sue in the case of fraud or constructive fraud 
D)  Third parties who used the financial statements may sue

Question 9

"Disgorgement" with respect to legal rulings refers to

Accepted Answer

A)  A defendant being forced to at least partially repay fraudulently gained money 
B)  An auditor being forced to reveal private client information because fraud has occurred 
C)  An auditor being held financially liable for investor losses 
D)  Giving up one's dinner after food poisoning 
A)  A defendant being forced to at least partially repay fraudulently gained money 
B)  An auditor being forced to reveal private client information because fraud has occurred 
C)  An auditor being held financially liable for investor losses 
D)  Giving up one's dinner after food poisoning

Question 10

Distinguish between an auditor's legal liability under common law and statutory law. Cite specific cases to support your answer.

Accepted Answer

An auditor's legal liability under commo

Question 11

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as:

Accepted Answer

A)  Business law 
B)  Tort law 
C)  Common law 
D)  Statutory law 
A)  Business law 
B)  Tort law 
C)  Common law 
D)  Statutory law

Question 12

The Caremark opinion dealt with which element of directors' obligations?

Accepted Answer

A)  Audit obligations 
B)  Financial reporting obligations 
C)  Fiduciary obligations 
D)  All of these 
A)  Audit obligations 
B)  Financial reporting obligations 
C)  Fiduciary obligations 
D)  All of these

Question 13

An audit engagement letter

Accepted Answer

A)  Offers an auditor's services to a client 
B)  Is required by generally accepted auditing standards (GAAS) 
C)  Details the SEC's expectations for the audit firm for a specific engagement 
D)  Formalizes the relationship between the auditor and the client for a specific engagement 
A)  Offers an auditor's services to a client 
B)  Is required by generally accepted auditing standards (GAAS) 
C)  Details the SEC's expectations for the audit firm for a specific engagement 
D)  Formalizes the relationship between the auditor and the client for a specific engagement

Question 14

In the U.S., if the auditor can demonstrate having performed services with the same degree of skill and judgment possessed by others in the profession, it can be said to have exercised:

Accepted Answer

A)  Prudence 
B)  Scienter 
C)  Nonfeasance 
D)  Due Care 
A)  Prudence 
B)  Scienter 
C)  Nonfeasance 
D)  Due Care

Question 15

The Private Securities Litigation Reform Act of 1995 changed the legal climate in the U.S. in a major way. Explain the nature of the changes under the PSLRA with respect to legal liability. Do you believe this act adequately protects shareholders and other third parties that might bring a lawsuit against an auditor and other defendants? Why or why not?

Accepted Answer

The Private Securities Litigation Reform

Question 16

Under the rules of the Sarbanes-Oxley Act of 2002, who must certify the public reports filed with the SEC?

Accepted Answer

A)  The independent auditor 
B)  The CEO 
C)  The CEO and CFO 
D)  The CFO 
A)  The independent auditor 
B)  The CEO 
C)  The CEO and CFO 
D)  The CFO

Question 17

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Accepted Answer

A)  Second National Bank & Trust declining to extend the loan 
B)  Ordinary negligence to Second National Bank & Trust 
C)  Ordinary negligence to unknown bank that provided additional funds to Holligan 
D)  Holligan declaring bankruptcy without a going-concern emphasis of matter 
A)  Second National Bank & Trust declining to extend the loan 
B)  Ordinary negligence to Second National Bank & Trust 
C)  Ordinary negligence to unknown bank that provided additional funds to Holligan 
D)  Holligan declaring bankruptcy without a going-concern emphasis of matter

Question 18

Clawback provisions under Dodd-Frank differ from those under SOX because:

Accepted Answer

A)  Dodd-Frank requirement extends to current or former executive officers versus CEO only under SOX. 
B)  Dodd-Frank is a three-year period versus the one-year period under SOX. 
C)  Dodd-Frank applies to any restatement as a result of material noncompliance with financial reporting requirements versus restatements caused by fraud or misconduct under SOX. 
D)  All of these 
A)  Dodd-Frank requirement extends to current or former executive officers versus CEO only under SOX. 
B)  Dodd-Frank is a three-year period versus the one-year period under SOX. 
C)  Dodd-Frank applies to any restatement as a result of material noncompliance with financial reporting requirements versus restatements caused by fraud or misconduct under SOX. 
D)  All of these

Question 19

What is the motivation for an audit partner to trade on inside information or tip off a friend or business associate to inside information? How does this relate to the ethical standards discussed in chapter 1?

Accepted Answer

The motivation for an audit partner to t

Question 20

A corporate director or officer may be able to avoid liability to the corporation or to its shareholders for poor business judgments by meeting the requirements of the

Accepted Answer

A)  Business judgment rule 
B)  The ethical reasoning rule 
C)  Sarbanes-Oxley Act 
D)  Dodd-Frank Financial Reform Act 
A)  Business judgment rule 
B)  The ethical reasoning rule 
C)  Sarbanes-Oxley Act 
D)  Dodd-Frank Financial Reform Act

The Rosenblum case ruling was of concern to the accounting profession because it implied that

Martha Stewart was sent to jail in the InClone Systems insider trading scandal because

A unique aspect of the DHB (Point Blank Solutions) case is that it deals with

The best way to minimize the penalty imposed on an organization under the Federal Sentencing Guidelines is to

Under the Private Securities Litigation Reform Act, if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should then report his/her conclusions to

Negligent nonfeasance would be said to occur when

Pfizer was investigated by the SEC for violating the FCPA because it allegedly

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that:

"Disgorgement" with respect to legal rulings refers to

Distinguish between an auditor's legal liability under common law and statutory law. Cite specific cases to support your answer.

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as:

The Caremark opinion dealt with which element of directors' obligations?

An audit engagement letter

In the U.S., if the auditor can demonstrate having performed services with the same degree of skill and judgment possessed by others in the profession, it can be said to have exercised:

Under the rules of the Sarbanes-Oxley Act of 2002, who must certify the public reports filed with the SEC?

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Clawback provisions under Dodd-Frank differ from those under SOX because:

What is the motivation for an audit partner to trade on inside information or tip off a friend or business associate to inside information? How does this relate to the ethical standards discussed in chapter 1?

A corporate director or officer may be able to avoid liability to the corporation or to its shareholders for poor business judgments by meeting the requirements of the

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters

Exam 6: Legal, Regulatory, and Professional Obligations of Auditors

The Rosenblum case ruling was of concern to the accounting profession because it implied that

Martha Stewart was sent to jail in the InClone Systems insider trading scandal because

A unique aspect of the DHB (Point Blank Solutions) case is that it deals with

The best way to minimize the penalty imposed on an organization under the Federal Sentencing Guidelines is to

Under the Private Securities Litigation Reform Act, if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should then report his/her conclusions to

Negligent nonfeasance would be said to occur when

Pfizer was investigated by the SEC for violating the FCPA because it allegedly

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that:

"Disgorgement" with respect to legal rulings refers to

Distinguish between an auditor's legal liability under common law and statutory law. Cite specific cases to support your answer.

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as:

The Caremark opinion dealt with which element of directors' obligations?

An audit engagement letter

In the U.S., if the auditor can demonstrate having performed services with the same degree of skill and judgment possessed by others in the profession, it can be said to have exercised:

Under the rules of the Sarbanes-Oxley Act of 2002, who must certify the public reports filed with the SEC?

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Clawback provisions under Dodd-Frank differ from those under SOX because:

What is the motivation for an audit partner to trade on inside information or tip off a friend or business associate to inside information? How does this relate to the ethical standards discussed in chapter 1?

A corporate director or officer may be able to avoid liability to the corporation or to its shareholders for poor business judgments by meeting the requirements of the

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters