Question 1

In the performance of an audit,a CPA

Accepted Answer

A) is legally liable for detecting an immaterial client fraud. 
B) must strictly follow GAAP for privately held clients. 
C) must exercise constructive professional care in the performance of their audit responsibilities. 
D) must exercise due professional care in the performance of their audit responsibilities.

Question 2

A CPA firm normally uses one or a combination of four defenses when there are legal claims by clients.Which one of the following is generally not a defense?

Accepted Answer

A) lack of duty 
B) nonnegligent performance 
C) contributory negligence 
D) foreseeable users

Question 3

If an auditor fails to fulfill a certain requirement in the contract,they may be guilty of

Accepted Answer

A) contract fraud. 
B) breach of contract. 
C) constructive fraud. 
D) criminal neglect.

Question 4

A common way for a CPA firm to demonstrate a lack of duty to perform is by use of a(n)

Accepted Answer

A) expert witness' testimony. 
B) engagement letter. 
C) management representation letter. 
D) confirmation letter.

Question 5

As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp.,Harrison,CPA,did not detect the embezzlement of a material amount of funds by the company's controller.As a matter of common law,to what extent would Harrison be liable to the Lamp Corp.for losses attributable to the theft?

Accepted Answer

A) He would have no liability,since the ordinary examination cannot be relied upon to detect thefts of assets by employees. 
B) He would have no liability because privity of contract is lacking. 
C) He would be liable for losses attributable to his negligence. 
D) He would be liable only if it could be proven that he was grossly negligent.

Question 6

Which of the following is an accurate statement regarding recent actions brought against accountants by clients and third parties?

Accepted Answer

A) Litigants will first seek state remedies because of the availability of class-action litigation. 
B) Gross negligence by the auditor must be proven under the Securities Acts of 1933 and 1934. 
C) The greatest growth in CPA liability litigation bas been under the federal securities laws. 
D) The amount of damages that plaintiffs can receive is greater under common law than under the federal securities laws.

Question 7

A(n)________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards.

Accepted Answer

A) business 
B) audit 
C) ethics 
D) process

Question 8

Discuss three major factors that have contributed to the recent increase in the number of lawsuits against auditors and the size of awards to plaintiffs.

Accepted Answer

The answer of Discuss three major factors that have contributed...

Question 9

Which of the following statements is True?

Accepted Answer

A)   
B)   
C)   
D)

Question 10

In the case of an audit,recklessness is present if the auditor knew an adequate audit was not done but still issued an opinion,even though there was no intent to deceive financial statement users.This description is the legal term for

Accepted Answer

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

Question 11

The only parties who can recover from auditors under the Securities Act of 1933 are original purchasers of securities.

Accepted Answer

A) True 
 B)False

Question 12

Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934 are often referred to as

Accepted Answer

A) the antifraud provisions. 
B) the new issues provisions. 
C) the full employment act for accountants. 
D) the RICO provisions.

Question 13

In which case were auditors prosecuted for filing false financial statements for a client with the government?

Accepted Answer

A) United States v.Natelli 
B) United States v.Simon 
C) Escott et al.v.BarChris 
D) ESM Government Securities v.Alexander Grant & Co.

Question 14

Match between columns
                        Premises: laws that have been passed by the U.S.Congress and other governmental units
existence of extreme or unusual negligence even though there was no intent to deceive or do harm;also termed recklessness
the assessment against a defendant of that portion of the damage caused by the defendant's negligence
lack of even slight care,tantamount to reckless behavior that can be expected of a person
absence of reasonable care that can be expected of a person in a set of circumstances
failure of one or both parties in a contract to fulfill the requirements of the contract
the assessment against a defendant of the full loss suffered by a plaintiff regardless of the extent to which other parties shared in the wrongdoing

Accepted Answer

The Answer of statutory law and ordinary negligence and separate is...

Question 15

An example of a breach of contract would likely include

Accepted Answer

A) an auditor's refusal to return the client's general ledger book until the client paid last year's audit fees. 
B) a bank's claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan. 
C) a CPA firm's failure to complete an audit on the agreed-upon date because the firm had a backlog of other work which was more lucrative. 
D) an auditor's claim that the client staff is unqualified.

Question 16

Under the Securities Act of 1933,

Accepted Answer

A) any party who relies on the company's audited financial statements can recover from the auditors. 
B) third-party users must prove that the auditor was negligent. 
C) the burden of proof is on the defendant. 
D) auditors face potential legal exposure for information contained in the Form 10-Q.

Question 17

Distinguish between what is meant by business failure and audit failure.

Accepted Answer

The answer of Distinguish between what is meant by business...

Question 18

Auditors may be liable to their clients if they are found guilty of

Accepted Answer