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auditing
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Fragen in diesem Quiz (88)
1Which of the following is NOT a key element of the definition of ethics?
- AReflective choice
- BConsequences of decisions
- CMoral principles
- DDefinitive conclusion
2Which of the following defines the imperative principle of ethics?
- AEthic decisions cannot be resolved without evaluating all possible outcomes of all choices.
- BIt is essential that decisions be made for the greater good of society.
- CAll ethical decisions will have positive and negative consequences.
- DEthics are a function of moral rules and principles.
3Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather than on following the rules?
- AMoral principle
- BUtilitarianism principle
- CGeneralization principle
- DImperative principle
4What agency has the ultimate authority in defining independence for public companies?
- ASEC
- BAICPA
- CCongress
- DDepartment of Justice
5Which of the following is the responsibility of the Professional Ethics Executive Committee?
- AEstablish minimal ethical standards for financial reporting.
- BMake and enforce all the rules of conduct for CPAs who are AICPA members.
- CEnforce SEC ethical standards.
- DAct as an investigative body of the AICPA when ethical violations are suspected.
6Which of the following is NOT one of the AICPA Principles of Professional Conduct?
- AObjectivity
- BDue Care
- CReliability
- DResponsibilitie
7Dara & Co. Audit Hill Corporation. Ellie is the engagement partner on the audit with an office in Buffalo Grove. Which of the following would NOT be considered a covered member?
- ABen, a partner in Dara & Company, with an office in Buffalo Grove
- BJulie, a partner in Dara & Company, with an office in Elmhurst
- CJason, who is a member of the attest engagement team with an office in Elmhurst
- DAdam, who is a tax partner and provided 50 hours of tax service to Hill Company during the year of the audit with an office in Elmhurst
8Which of the following is NOT included in Rule of Conduct 102, Integrity and Objectivity?
- ANot subordinate judgment to others
- BFree of conflict of interests
- CNot knowingly misrepresent facts
- DPrudent assessment of facts
9Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the external auditor?
- AThe CPA firm's quality control partner
- BThe audit committee
- CThe client's senior management
- DThe CPA firm's engagement partner
10According to Sarbanes-Oxley, the audit committee must pre-approve all audit and non-audit services. This can be done
- ACase-by-case basis: Yes; Through established policies: No; Delegating the responsibility: Yes
- BCase-by-case basis: No; Through established policies: Yes; Delegating the responsibility: No
- CCase-by-case basis: Yes; Through established policies: Yes; Delegating the responsibility: No
- DCase-by-case basis: No; Through established policies: No; Delegating the responsibility: Yes
11Which of the following is NOT a restriction placed on audit partners by Sarbanes-Oxley?
- ALimits other partners associated with the engagement to a seven-year term.
- BPartners that engage in selling services, other than audit, review, and attestation services, to an audit client are not independent with respect to that client.
- CLimits engagement partners to a five-year term as the engagement partner.
- DEngagement partners must review nonaudit work to insure that independence has not been compromised.
12Which of the following is true according to Government Independence Standards?
- ANonaudit services are allowed providing the audit organization does not perform management functions, make management decisions, or audit its own work.
- BNonaudit services are allowed as long as the nature of the service is publicly disclosed including a statement that independence has not been compromised.
- CNonaudit services cannot be provided to a government entity that is an attest client.
- DNonaudit services are allowed if they have been approved by the executive body of the governing organization.
13Which of the following is allowed under the Government Independence Standards?
- ACPAs that perform nonaudit services are prohibited from being a member of the audit team.
- BThe audit organization must never reduce the scope of the audit because of nonaudit services performed.
- CThe government entity must have established policies to assure the nonaudit services will not affect the audit firm's ability to perform the audit.
- DPersonnel who provide nonaudit services are prohibited from planning, conducting or reviewing audit work related to the nonaudit service.
14Rule 201, General Standards, requires a member to comply with standards and interpretations. Which of the following is NOT a standard covered by Rule 201?
- ASufficient relevant data
- BIndependence
- CDue professional care
- DPlanning and supervision
15Maralee has been approached by J. Fox Entertainment to perform an audit of her theatre company. Maralee has never audited a theatre company before. Maralee can
- Aaccept the engagement with the understanding that additional hours will be required for Maralee to learn and understand the nature of the business.
- Bnot accept the engagement because she does not have the specialized industry knowledge.
- Crecommend another auditor and receive a fee for the referral.
- Daccept the engagement if she can obtain the required knowledge before the end of the engagement.
16An audit client hires a member of the audit engagement team to be its new controller. Sarbanes-Oxley rules require that
- Athe client disclose the controller's relationship in the notes to the financial statements.
- Bthe new controller sever all relations with the CPA firm, including any retirement funds.
- Cthe client find a new audit firm.
- Dthe new controller not take part in any discussions regarding the retention of the audit form.
17The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that
- Aclient directors and financial statement users should consider all aspects related to auditors' independence, and information about fees is important.
- Bsuch disclosures will end the practice of auditors performing nonaudit services for audit clients.
- Cfinancial analysts will attribute far less credibility to financial statements audited by public accounting firms that earn substantial nonaudit fees from audit clients.
- Daudit firm consulting on client's accounting information processing systems essentially impairs audit independence.
18CPA Krogstad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or a reviewer. CPA Ward is the partner in charge of the Dodger, Inc. audit (an SEC filing). The audit firm's independence is impaired if
- AWard's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan.
- BKrogstad owns Dodger common stock.
- CKrogstad's brother owns 10 shares of Dodger common stock.
- DWard's sister-in-law is a sales representative with a territory in California.
19Which of the following philosophical theories places emphasis on following rules, rather than on the consequences of the decision?
- AGeneralization principle
- BVirtue ethics
- CUtilitarianism
- DImperative principle
20Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie's independence is impaired if
- Aindependence is impaired in all of these situations.
- BLisa is the Controller.
- CLisa is the marketing manager.
- DLisa owns 25% of the company.
21Which of the following sections is no longer included in the AICPA Rules of Conduct?
- AIndependence, Integrity, and Objectivity
- BResponsibilities to Clients
- CGeneral and Technical Standards
- DResponsibilities to Colleagues
22The interpretation of Independence Rule 101 allows members to
- Abe a trustee of a client pension or profit sharing trust.
- Bhave loans from a client that are collateralized by cash deposits held by the client.
- Chold a material indirect interest in a client.
- Dhave home mortgages with a client even if they are on the engagement.
23The AICPA Council has designated the following bodies to pronounce accounting principles under Rule 203, except the
- AGovernmental Accounting Standards Board.
- BOpinions of the Accounting Principles Board.
- CAuditing Procedures Board.
- DFinancial Accounting Standards Board.
24The interpretation of Rule 501, Acts Discreditable to the Profession, would not include
- Afailure to follow government audit standards in government audits.
- Bwithholding a client's books until a professional fee is paid.
- Cpermitting others to make misleading entries in records.
- Dmembership in an activist political party.
25According to Rule 203, Accounting Principles, requires the auditor to adhere to official pronouncements except when
- Aadherence to a pronouncement would be misleading.
- Bpending legislation may change the reporting requirements of the client.
- Ccomplying would violate client confidentiality.
- Dit has been established that financial statement users prefer an alternative presentation of information.
26Rule 301 has been interpreted by the AICPA to explicitly allow a CPA to divulge confidential client information to
- Athe Federal Trade Commission.
- Bthe U.S. Department of Justice.
- Cthe SEC.
- Dthe AICPA Professional Ethics Division.
27Perry Pinkney, CPA, is one of the general partners in a partnership, which in turn invested 70% of its assets in the common stock of Pinkney's audit client (Darby Corporation). According to the AICPA Code of Professional Conduct, Pinkney is considered to have
- Aan indirect financial interest in Darby.
- Bno financial interest in Darby.
- Ca partial financial interest in Darby.
- Da direct financial interest in Darby.
28A client has omitted a significant disclosure from the financial statements. The auditor has asked the client to include the information, but the client refuses and claims the information is confidential. The position of the CPA should be that the information
- Acannot be considered confidential unless it can be covered by the attorney-client privilege.
- Bis confidential and will only be disclosed under subpoena or for a regulatory investigation.
- Ccannot be considered confidential if it is necessary to the completeness of the financial statements.
- Dshould be discussed with the audit committee to determine if the information should be disclosed.
29Which of the following philosophical theories places emphasis on the consideration of projecting the consequences of a choice in terms of this question: "What may be the consequences of similar persons making this choice in similar circumstances?"
- AVirtue ethics
- BUtilitarianism
- CGeneralization principle
- DImperative principle
30Which of the following forms of organization would NOT be allowed under Rule 505 of the Professional Code of Conduct?
- ALimited liability partnership; all partners are CPAs
- BPartnership; 40% of partners are CPAs
- CLimited liability corporation; all shareholders are CPAs
- DLimited liability partnership; 70% of partners are CPAs
31Red and Green, CPAs are the external auditors for Blue Corporation, a publicly-held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true?
- APublic accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.
- BThe independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions.
- CThe independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation.
- DDoing internal audit work does not impair the independence of Red and Green.
32Violet, CPA, audits Big Bank, a local financial institution. Which of the following would most likely impair Violet's independence with regard to Big Bank?
- AA Visa credit card issued by Big Bank with a balance of $2,500
- BA home loan with the value of the house exceeding the mortgage balance
- CA personal loan collateralized by cash deposits at Big Bank
- DA car loan collateralized by the car
33According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
- AThe client is the only tenant in a commercial building owned by the auditor.
- BThe auditor is the officially appointed stock transfer agent of a client.
- CThe client owes the auditor fees for more than two years prior to the issuance of the audit report.
- DThe auditor's checking account that is fully insured by a federal agency is held at a client financial institution.
34Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its
letterhead?- AAll owners must be members.
- BThe firm must be a dues-paying member.
- CAt least one of the owners must be a member.
- DThe owners whose names appear in the firm name must be members.
35In which of the following circumstances would a CPA who audits XZ Corporation lack independence?
- AThe CPA reduced XZ's usual audit fee by 40% prior to the audit because XZ's financial condition was unfavorable.
- BThe CPA has an automobile loan from XZ, a financial institution. The loan is collateralized by the automobile.
- CThe CPA and XZ's president each own 25% of FOB Corporation, a closely held company.
- DThe CPA and XZ's president are both on the Board of Directors of COD Corporation.
36According to the ethical standards of the profession, which of the following acts is generally prohibited?
- AAccepting a commission for recommending a product to an audit client
- BAccepting engagements obtained through the efforts of third parties
- CPurchasing a product from a third party and reselling it to a client
- DWriting a financial management newsletter promoted and sold by a by a publishing company
37According to the ethical standards of the profession, which of the following acts is generally prohibited?
- AAccepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent
- BRetaining client records after an engagement is terminated prior to completion and the client has demanded their return
- CIssuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client
- DRevealing confidential client information during a quality review of a professional practice by a team from the state CPA society
38Which of the following statements include in the advertising of a CPA firm is permissible according to Rule 502, Advertising and Other Forms of Solicitation.
- A"Bob Bullet, CEO of A-One Corp., states that we are the best auditors his company has ever used."
- B"We have several tax partners that work closely with Judges and IRS attorneys on high-profile legal issues."
- C"We audit the five largest manufacturing companies in the state."
- D"We provide the best audit coverage of any firm in the state."
39To which group can a CPA provide audit documentation without being subpoenaed and without the client's consent?
- AAnother CPA firm considering the purchase of the auditing firm
- BAnother CPA firm performing a peer review
- CThe FASB
- DThe IRS
40Auditors should not be liable to any party if they perform services that met the standards of
- Aordinary negligence.
- Bdue care.
- Cgood faith.
- Dregulatory providence.
41A principle that may reduce or eliminates auditors' liability to clients is
- Aclient's constructive negligence.
- Bauditors' gross negligence.
- Cauditors' ordinary negligence.
- Dclient's contributory negligence.
42Elliot Corp. is interested in purchasing Roger Corp. Prior to the purchase Elliot hired Adam & Co. to audit the financial statements of Roger. During the audit, Adam & Co. failed to discover a fraud that resulted in material misstatements in Roger's financial statements. After the acquisition, the fraud was discovered and Elliot Corp. suffered substantial losses. If Elliot sues Adam & Co., Elliot must prove that Adam & Co
- Afailed to exercise the appropriate level of professional care.
- Bknew of the instances of fraud.
- Cacted recklessly or with lack of reasonable grounds for belief.
- Ddemonstrated gross negligence.
43Which of the following statements is true concerning auditors' responsibilities during the audit?
- AAuditors are strictly liable for failures to discover client fraud.
- BAuditors are not liable unless they commit gross negligence or intentionally disregard generally accepted auditing standards.
- CAuditors must exercise the level of care, skill, and judgment expected of a reasonably prudent auditor under the circumstances.
- DAuditors must plan the audit to gather sufficient competent evidence to guarantee the accuracy of the financial statements.
44Kerry CPA is the auditor for Sammy Corp. During the audit, Kerry discovers a material misstatement in Sammy's financial statements. Sammy's management tells Kerry that if the misstatement is corrected or if Kerry issues an opinion that indicates there is a material misstatement, Sammy Corp. will likely have to declare bankruptcy and thousands of employees will lose their jobs. Which of the following statements is true if the misstatement is not corrected and Kerry issues an unqualified opinion on Sammy's financial statements?
- AKerry is likely liable to third parties even if the third parties were aware of the fraud and did not rely on the opinion.
- BKerry is liable only to third parties in privity of contract.
- CKerry is likely liable to any person who suffered a loss as a result of the fraud.
- DKerry is liable only to known users of the financial statements.
45Mays bought McCovey Corp. common stock in an offering registered under the Securities Act of 1933. Hart & Co., CPAs, gave an unqualified opinion on McCovey's financial statements that were included in the registration statement filed with the Securities and Exchange Commission. Mays sued Hart under the provisions of the 1933 Act that deal with omission of facts required to be in the registration statement. Mays must prove that
- Athere was fraudulent activity by Hart.
- BMays relied on Hart's opinion.
- CMays was in privity with Hart.
- Dthe financial statements contained a material misstatement.
46To prevail in an action brought under common law, the plaintiff must show all of the following except
- Aauditors knew the financial statements contained a material misstatement.
- Bthe financial statements contained a material misstatement.
- Che or she relied on the financial statements.
- Dhe or she was damaged or suffered a loss.
47Failure to provide any level care in fulfilling a duty owed to another party, including reckless disregard for the truth, is called
- Aconstructive fraud.
- Bprivity.
- Cordinary negligence.
- Dbreach of contract.
48Lauren hires Humphrey, a CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements are required to be filed with a regulatory body by October 1. Humphrey does not complete the audit until October 5. Lauren is late filing the financial statements and is fined $100,000 by the regulatory body. Lauren would most likely sue Humphrey claiming
- Aconstructive fraud.
- Bgross negligence.
- Cordinary negligence.
- Dbreach of contract.
49Lauren hires Humphrey, a CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements will be provided to Key Largo Bank for a loan. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves the loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming
- Ait was a foreseeable party.
- Bit was a foreseen party.
- Cit was a primary beneficiary.
- Dit was in privity of the contract.
50Lauren hires Humphrey, a CPA, to provide an audit of her financial statements. The engagement letter includes a statement acknowledging that audited financial statements will be provided to financial institutions for a loan, but does not name any financial institutions. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves the loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming
- Ait was in privity of the contract.
- Bit was a foreseeable party.
- Cit was a foreseen party.
- Dit was a primary beneficiary.
51Lauren hires Humphrey, a CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements are needed for a filing with a regulatory body. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves a loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming
- Ait was in privity of the contract.
- Bit was a foreseeable party.
- Cit was a foreseen party.
- Dit was a primary beneficiary.
52If an audit is performed for the benefit of a specific person or organization, that person or organization is known as a(n)
- Aforeseeable third party.
- Bprime benefactor.
- Cprimary beneficiary.
- Dparty to the contract.
53At the request of James Company's management, E.G. audited James Company's financial statements and was aware that James' management intended to deliver the financial statements to its 25 shareholders for the purpose of repurchasing their shares for $50 per share (the investors had originally purchased the shares for $5 per share). The audit was conducted in accordance with generally accepted auditing standards and the financial statements were prepared in accordance with generally accepted accounting principles. Later, the shareholders sued the auditors, claiming that if they fully realized the significance of disclosures about the market value of the assets, they could have received $75 per share from James Company. The shareholders' lawsuit will probably fail because
- Athe shareholders did not rely properly on the financial statements.
- Bthe shareholders failed to prove lack of appropriate professional care on the part of auditors.
- Cthe shareholders did not suffer a loss.
- Dthe shareholders were not primary beneficiaries of the audit engagement and they have no standing to sue.
54Which of the following claims concerning the quality of auditors' work would least likely result in civil liability for damages?
- AIssuing an unqualified auditors' opinion when evidence suggests that the financial statements were not prepared according to generally accepted accounting principles
- BReckless disregard of evidence that the financial statements do not conform to generally accepted accounting principles
- CFailure to investigate possible fraud when other entities in the industry have experienced frauds
- DGross negligence amounting to constructive fraud
55Lancaster & Co. CPAs is auditing the financial statements of Cooper Corporation. During the course of the audit, Cooper Corporation sent the following memo to the engagement partner:
We have requested $1 million worth of products from Ladd Corporation with credit terms of net 30 days. Ladd has requested audited financial statements for its credit decision. We notified Ladd that our annual audit was in process and we would provide the audited financial statements to them as soon as they were completed.
Which of the following statements is true with regards to this memo?- AThe memo is only a courtesy and does not alter the terms of the engagement letter or change the nature of Ladd Corporation's standing to sue.
- BThe memo is an amendment to the engagement letter and makes Ladd Corporation a primary beneficiary of the audited financial statements.
- CThe memo may move Ladd Corporation closer to a primary beneficiary and reposition them as third party with a standing to sue, depending on the jurisdiction of any future lawsuits.
- DThe memo is an additional contract placing Ladd in privity of contract.
56When bringing suit against auditors under section 10(b) of the Securities Exchange Act of 1934, plaintiffs must allege and prove
- Athe plaintiffs purchased the specific securities through a public offering and thus have a right to sue.
- Bthe financial statements in the offering registration filing contained a material misstatement.
- Cauditors were guilty of ordinary negligence and failed to discover material misstatements in the financial statements.
- Dauditors were aware of material misstatements in the financial statements.
57Which of the following parties is most likely to recover against auditors for losses resulting from acts of ordinary negligence?
- AThird parties that auditors should have foreseen could rely on the client's financial statements
- BThird parties whose reliance on the client's financial statements was reasonably foreseeable
- CPurchasers and sellers of securities under the Securities Exchange Act of 1934
- DThe auditors' client
58An audit failure occurs when
- Aauditors cannot collect audit fees owed to them by the client.
- Bauditors are sued by a third party.
- Cauditors fail to conduct the examination in accordance with generally accepted auditing standards, which results in the failure to identify material misstatements in the financial statements.
- Da client goes bankrupt or has serious financial difficulty.
59Third-party plaintiffs bringing action under common law need not prove
- Abreach of contract.
- Bthey were damaged or suffered an economic loss.
- Creliance on the financial statements
- Dthe financial statements were direct cause of loss.
60Typical defenses for auditors in common law actions include all of the following, except
- Athe plaintiff was foreseen
- Bthe plaintiff contributed to the failure to detect material misstatements.
- Cthe financial statements were not materially misstated.
- Dthe audit was conducted in accordance with generally accepted auditing standards.
61The Securities Act of 1933
- Aregulates the accounting profession.
- Bregulates trading in securities.
- Capproves and guarantees investments.
- Dregulates the initial issuance of securities.
62Which of the following would not need to be demonstrated by third parties bringing suit against auditors for losses sustained under the Securities Act of 1933?
- APurchasers would need to demonstrate all of these.
- BThe client's financial statements contained a material misstatement.
- CThird-party purchasers suffered a loss.
- DAuditors were aware of the materially misstated financial statements.
63The SEC Rule 10b-5 deals with
- Afraud in the purchase or sale of securities.
- Bthe use of the "due diligence" defense to avoid liability.
- Cpenalties for willfully and knowingly violating the Securities Exchange Act of 1934.
- Dintegrated disclosure system for annual reports.
64The first significant case under section 11 of the Securities Act of 1933 charging auditors with not conducting a reasonable investigation was
- AErnst & Ernst v. Hochfelder.
- BUnited States v. Benjamin.
- CEscott v. BarChris Construction Corp.
- DRusch Factors v. Levin.
65Foreseeable third parties are best described as
- Athose third parties who have a direct relationship with auditors through previous contract related to the audit engagement.
- Bthose third parties whose decisions normally rely on audited financial statements and opinions on those financial statements.
- Cthose third parties who will rely on the audit and are specifically known by auditors.
- Dmanagement of the entity.
66Which of the following statements about the Securities Act of 1933 is not true?
- AThe plaintiff need not prove that the materially misstated financial statements are the direct cause of the loss.
- BAny purchaser of securities may sue auditors.
- CThe plaintiff must prove they read and relied upon the financial statements.
- DThe plaintiff must prove damages or an economic loss.
67The restatement of torts is a general legal doctrine that extends liability for ordinary negligence to
- Aall users of financial statements.
- Bprimary beneficiaries.
- Cforeseen third parties.
- Dforeseeable third parties.
68Which of the following is not part of the definition of proportionate liability adopted by the Private Securities Litigation Reform Act?
- AThe full amount of damages may be recovered from any defendants involved in the action.
- BA solvent defendant's liability may be increased by 50 percent if other defendants are insolvent.
- CDefendants who knowingly committed a violation of securities laws remain jointly and severally liable.
- DThe total responsibility for loss is divided among all parties responsible for the loss.
69Paula performed the audit of the financial statements of Abdul Company (a nonpublic entity currently not subject to filing requirements under the Securities Act of 1933 or Securities Exchange Act of 1934). Abdul Company is currently considering several alternatives for raising capital, including seeking financing from area banks or an initial public offering of its securities. Which of the following parties would have the lowest likelihood of successfully bringing suit for ordinary negligence against Paula?
- AAbdul Company
- BSimon Whitaker, a private investor who is considering acquiring Abdul Company
- CFirst State Bank, a bank with whom Abdul Company has not previously done business
- DPurchasers of Abdul Company's securities in an initial public offering
70Which of the following factors would not influence third parties' abilities to bring suit against auditors for ordinary negligence under common law?
- AThe jurisdiction in which the action occurred
- BThe relationship between the auditors and third party
- CThe nature of activity by auditors that resulted in their failure to exercise appropriate levels of professional care
- DThe extent to which the third party relied upon the misstated financial statements and this reliance resulted in their loss
71According to Sarbanes-Oxley, accountants performing an audit or review must maintain all engagement documentation for a period of
- A5 years.
- B3 years.
- C2 years.
- D7 years.
72Which of the following statements concerning the Ultramares Corp. v. Touche case is not true?
- AThis case concluded that auditors' liability to third parties would be generally limited to gross negligence or fraud.
- BThis case established the rights of third parties to bring suits against auditors under common law liability.
- CThis case provided a test to determine whether a third party qualified as a primary beneficiary and could bring suit for ordinary negligence.
- DThis case was brought under common law liability.
73In a common law action against auditors, lack of privity is a viable defense if the plaintiff
- Abases the action upon fraud.
- Bis the auditors' client.
- Ccan prove gross negligence by auditors that amounts to a reckless disregard for the truth.
- Dis the client's creditor who sues auditors for ordinary negligence.
74Under the liability provisions of section 11 of the Securities Act of 1933, auditors may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the registration statement. Under section 11, auditors usually will not be liable to the purchaser
- Aunless the purchaser can prove scienter on the part of auditors.
- Bunless the purchaser can prove privity with auditors.
- Cif auditors can show contributory negligence on the part of the purchaser.
- Dif auditors can demonstrate due diligence.
75Under the liability provisions of section 11 of the Securities Act of 1933, auditors may be liable to any purchaser of securities for certifying materially misstated financial statements that are included in the registration statement. Under section 11, which of the following must be proven by a purchaser of the security?
- AReliance on financial statements: Yes; Fraud by auditors: No
- BReliance on financial statements: Yes; Fraud by auditors: Yes
- CReliance on financial statements: No; Fraud by auditors: Yes
- DReliance on financial statements: No; Fraud by auditors: No
76Beckler & Associates, CPAs, examined and issued an unqualified opinion on the financial statements of Queen Co. 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 for its losses associated with Queen's default. Which of the following must Mac prove in order to recover?
I. Beckler did not conduct the audit with the appropriate level of professional care.
II. Mac relied on the financial statements.- ANeither I nor II.
- BBoth I and II.
- CII only.
- DI only.
77While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included 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. Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities under section 11 of the Securities Act of 1933?
- ALarson will not be liable if the purchaser did not rely on the financial statements.
- BThe purchaser must prove that Larson knew of the material misstatements.
- CLarson will not be liable if it had reasonable grounds to believe the financial statements were accurate.
- DThe purchaser must prove that Larson failed to conduct the audit in accordance with generally accepted auditing standards.
78While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included 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, Larson's best defense would be that the
- Aidentity of the purchaser was not known to Larson at the time of the audit.
- Baudit was conducted in accordance with generally accepted auditing standards.
- Cclient was aware of the misstatements.
- Dpurchaser was not in privity of contract with Larson.
79While conducting an audit of a public entity, Wallace failed to identify material misstatements in its client's financial statements. Investors then sued Wallace in connection with this audit. Which of the following would not need to be demonstrated in order for the shareholders to successfully bring suit against Wallace?
- AThe shareholders relied upon the materially misstated financial statements.
- BWallace was in privity with the shareholders.
- CThe reliance on the materially misstated financial statements caused the shareholders' losses.
- DWallace acted with gross negligence in his audit.
80Sun Corp. approved a merger plan with Cord Corp. One of the determining factors in approving the merger was the financial statements of Cord that 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 Frank to be liable under common law liability, Sun at a minimum must prove that Frank
- Aacted with scienter.
- Bfailed to exercise the appropriate level of professional care.
- Cdemonstrated gross negligence.
- Dknew of the irregularities.
81Which of the following elements, if present, would support a finding of constructive fraud on the part of auditors?
- AActions that demonstrated scienter
- BGross negligence in conducting the engagement
- CFailure to perform the engagement in accordance with the terms in the engagement letter
- DOrdinary negligence in conducting the engagement
82To be successful in a civil action under section 11 of the Securities Act of 1933 against auditors for liability for a materially misstated registration statement, the plaintiff must prove
- AAuditors' intent to deceive: No; Plaintiff's reliance on the registration statement: No
- BAuditors' intent to deceive: No; Plaintiff's reliance on the registration statement: Yes
- CAuditors' intent to deceive: Yes; Plaintiff's reliance on the registration statement: No
- DAuditors' intent to deceive: Yes; Plaintiff's reliance on the registration statement: Yes
83Which of the following is the best defense auditors can assert in a suit for common law fraud based on their unqualified opinion on materially misstated financial statements?
- AA disclaimer contained in the engagement letter
- BLack of privity
- CLack of scienter
- DContributory negligence on the part of the client
84Under the anti-fraud provisions of section 10(b) of the Securities Exchange Act of 1934, auditors may be liable if they acted
- Awithout good faith.
- Bwith ordinary negligence.
- Cwithout due diligence.
- Dwith independence.
85How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law?
- APurchasers have to prove either fraud or gross negligence as a basis for recovery.
- BPurchasers only have to prove loss caused by reliance on audited financial statements.
- CPrivity with purchasers is not a necessary element of proof.
- DAuditors are held to a standard of care described as professional skepticism.
86Which of the following is not a reason that the Class Action Fairness Act of 2005 will benefit auditors in class action lawsuits?
- AVerdicts in state courts are normally more appropriate to apply to multiple jurisdictions than verdicts in federal courts.
- BState courts may discriminate against defendants from other jurisdictions.
- CFederal courts have more resources at their disposal for managing class action lawsuits.
- DFederal courts provide a higher level of scrutiny for class action lawsuits than state courts.
87Under the Securities Act of 1933, which of the following defenses is related to auditors performing a reasonable investigation of the financial statements?
- ACausation
- BPrudent auditor
- CDue diligence
- DContributory negligence
88Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law?
- AThird parties did not rely upon the financial statements
- BThe loss was caused by factors other than the materially misstated financial statements
- CLack of proper standing (relationship) to bring suit in that jurisdiction
- DLack of a privity relationship with auditors
Informationen
- Beschreibung
- final review
- Autor
- Christian Cobo
- Sprache
- English
- Aufrufe
- 460
- Schlagwörter
- Bewertung
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