Question 1

What is a worrisome consequence under the joint and several liability principle?

Accepted Answer

A)  Each negligent party is liable for the portion of the damages for which it is responsible
B)  All negligent parties are always liable for damages
C)  Only the negligent party considered to have "deep pockets" is held liable for damages
D)  Each negligent party could be held liable for the total of damages sufferedE) All of the above
F) A) and B)

Question 2

In establishing that the third party relied on the financial statements,one factor that works against plaintiffs' establishing such reliance is:

Accepted Answer

A)  Fraud did not exist
B)  Damages or loss suffered by the plaintiff would not have occurred regardless of whether the audited financial statements were misstated
C)  Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated
D)  Negligence did not existE) C) and D)
F) B) and C)

Question 3

In Grant Thornton v.Prospect High Income Fund,the Texas Supreme Court held:

Accepted Answer

A)  Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report
B)  Auditors were not liable for ordinary negligence
C)  Auditors are not guarantors of accurate and reliable financial statements
D)  Management is responsible for the financial statementsE) B) and C)
F) C) and D)

Question 4

The section of SOX that requires management to prepare a report on its internal controls is:

Accepted Answer

A)  Section 302
B)  Section 404
C)  Section 808
D)  Section 10A(b) E) B) and C)
F) All of the above

Question 5

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because:

Accepted Answer

A)  Its auditors did not follow the generally accepted auditing standards (GAAS)  at the time
B)  The independent audit of financial statements was not required at the time
C)  Physical inspection of inventory was not performed by the auditors
D)  The auditors were not independent and conspired with management to steal the fundsE) All of the above
F) None of the above

Question 6

In Grant Thornton v.Prospect High Income Fund,Grant used each of the following points to defend itself against legal liability except:

Accepted Answer

A)  There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury
B)  There was no evidence of actual and justifiable reliance
C)  There was no evidence of the loss suffered by the plaintiffs
D)  Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence,all of which was not presentE) A) and D)
F) None of the above

Question 7

In chapter 4 we discussed the rules for independence.Auditor violations of independence can cause legal liability issues for the individual auditor and,perhaps,the audit firm.Describe situations where auditor legal liability has occurred as a result of independence violations and identify other situations addressed in the AICPA Code that could lead to legal liability.

Accepted Answer

Two examples of insider trading were dis...

Question 8

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

Accepted Answer

A)  A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities has been created
B)  The auditors are responsible for the internal controls and have evaluated and reported on them
C)  All changes in internal controls or related factors that could have a negative effect on the internal controls have been made
D)  The audit report was unmodifiedE) B) and D)
F) C) and D)

Question 9

Distinguish between an auditor's legal liability under common law and statutory law.

Accepted Answer

Common law
Common-law liability evolves ...

Question 10

The Credit Alliance v.Arthur Andersen & Co.case established three tests that must be satisfied for holding auditors liable for negligence to third parties.All of the following are tests described except:

Accepted Answer

A)  Knowledge by the accountant that the financial statements are to be used for a particular purpose
B)  The intention of the third party to rely on those statements
C)  Some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance
D)  The identity of the third party must be directly known to the auditorE) A) and C)
F) A) and B)

Question 11

The U.S.Supreme Court ruled in Ernst & Ernst v.Hochfelder that:

Accepted Answer

A)  A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter
B)  The auditor engaged in an act in connection with the purchase or sale of a security that caused the loss to the plaintiff
C)  Breach of duty is not required to establish fraud
D)  The auditor has no legal liability for fraud to third partiesE) A) and D)
F) B) and D)

Question 12

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Accepted Answer

A)  One week
B)  One month
C)  Three business days
D)  One business dayE) None of the above
F) A) and C)

Question 13

The term "true and fair view" tends to be a replacement for _________ used in the U.S.

Accepted Answer

A)  Full and fair
B)  Present fairly
C)  Representational faithfulness
D)  Economic substanceE) A) and B)
F) B) and C)

Question 14

In the case of Equity Funding,the audit client:

Accepted Answer

A)  Fraudulently recorded inventories that did not in fact exist
B)  Inflated its earnings by recording fictitious sales of insurance policies
C)  Moved liabilities off the balance sheet by using thousands of subsidiaries
D)  Recorded inventory below cost,therefore understating costs of goods sold and overstating net incomeE) B) and D)
F) All of the above

Question 15

Rule 10b-5 of the Securities Exchange Act of 1934 makes it unlawful for a CPA to engage in each of the following activities except:

Accepted Answer

A)  Employ any device,scheme,or artifice to defraud
B)  Omit a material fact necessary for the financial statements to present fairly financial position,results of operations,and cash flows
C)  Engage in any act,practice,or course of business to commit fraud or deceit in connection with the purchase or sale of a security
D)  Make an untrue statements of material fact or omit a material fact necessary in order to make the statement made,in the light of the circumstances under which they were made,not misleadingE) A) and D)
F) B) and C)

Question 16

The Con-Way case deals with legal liabilities due to:

Accepted Answer

A)  Bribery of foreign government officials
B)  Fraudulent financial statements
C)  Facilitating payments to government agents
D)  Bribery of U.S.government officialsE) B) and C)
F) A) and D)

Question 17

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 sueE) All of the above
F) A) and B)

Question 18

Which of the following is NOT a cultural factor identified in Gray's Model?

Accepted Answer

A)  Professionalism
B)  Flexibility
C)  Conservatism
D)  SecrecyE) None of the above
F) B) and C)

Question 19

The Securities Act of 1933:

Accepted Answer

A)  Regulates the auditing of financial statements for publicly-traded companies
B)  Limits the financial liability of independent auditors except in the case of gross negligence
C)  Regulates the initial offering of securities
D)  Regulates which services may be performed for a publicly-traded company by an audit firmE) B) and C)
F) None of the above

Question 20

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 provenE) A) and B)
F) A) and C)

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

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

Correct Answer
verified

Which of the following is NOT a cultural factor identified in Gray's Model?

Correct Answer
verified

The U.S.Supreme Court ruled in Ernst & Ernst v.Hochfelder that:

Correct Answer
verified

The Credit Alliance v.Arthur Andersen & Co.case established three tests that must be satisfied for holding auditors liable for negligence to third parties.All of the following are tests described except:

Correct Answer
verified

What is a worrisome consequence under the joint and several liability principle?

Correct Answer
verified

In Grant Thornton v.Prospect High Income Fund,the Texas Supreme Court held:

Correct Answer
verified

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:

Correct Answer
verified

In Grant Thornton v.Prospect High Income Fund,Grant used each of the following points to defend itself against legal liability except:

Correct Answer
verified

The Con-Way case deals with legal liabilities due to:

Correct Answer
verified

The Securities Act of 1933:

Correct Answer
verified

Distinguish between an auditor's legal liability under common law and statutory law.

Correct Answer
verified
Common law
Common-law liability evolves ...
View Answer

In establishing that the third party relied on the financial statements,one factor that works against plaintiffs' establishing such reliance is:

Correct Answer
verified

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

Correct Answer
verified

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Correct Answer
verified

In the case of Equity Funding,the audit client:

Correct Answer
verified

Correct Answer
verified
Two examples of insider trading were dis...
View Answer

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because:

Correct Answer
verified

The term "true and fair view" tends to be a replacement for _________ used in the U.S.

Correct Answer
verified

The section of SOX that requires management to prepare a report on its internal controls is:

Correct Answer
verified

Rule 10b-5 of the Securities Exchange Act of 1934 makes it unlawful for a CPA to engage in each of the following activities except:

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

Which of the following is NOT a cultural factor identified in Gray's Model?

Correct AnswerverifiedShow Answer

The U.S.Supreme Court ruled in Ernst & Ernst v.Hochfelder that:

Correct AnswerverifiedShow Answer

The Credit Alliance v.Arthur Andersen & Co.case established three tests that must be satisfied for holding auditors liable for negligence to third parties.All of the following are tests described except:

Correct AnswerverifiedShow Answer

What is a worrisome consequence under the joint and several liability principle?

Correct AnswerverifiedShow Answer

In Grant Thornton v.Prospect High Income Fund,the Texas Supreme Court held:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

In Grant Thornton v.Prospect High Income Fund,Grant used each of the following points to defend itself against legal liability except:

Correct AnswerverifiedShow Answer

The Con-Way case deals with legal liabilities due to:

Correct AnswerverifiedShow Answer

The Securities Act of 1933:

Correct AnswerverifiedShow Answer

Distinguish between an auditor's legal liability under common law and statutory law.

Correct AnswerverifiedCommon lawCommon-law liability evolves ...View AnswerShow Answer

In establishing that the third party relied on the financial statements,one factor that works against plaintiffs' establishing such reliance is:

Correct AnswerverifiedShow Answer

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

Correct AnswerverifiedShow Answer

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Correct AnswerverifiedShow Answer

In the case of Equity Funding,the audit client:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTwo examples of insider trading were dis...View AnswerShow Answer

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because:

Correct AnswerverifiedShow Answer

The term "true and fair view" tends to be a replacement for _________ used in the U.S.

Correct AnswerverifiedShow Answer

The section of SOX that requires management to prepare a report on its internal controls is:

Correct AnswerverifiedShow Answer

Rule 10b-5 of the Securities Exchange Act of 1934 makes it unlawful for a CPA to engage in each of the following activities except:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Common law
Common-law liability evolves ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Two examples of insider trading were dis...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified