Quiz
Chapter 4 Pre Quiz
Questions in this quiz (10)
1Which of the following factors is not a reason that audit firms experience litigation for business failures, rather than audit failures?
- AContingent-fee compensation for audit firms
- BJoint and several liability statutes
- CClass action lawsuits
- DA misunderstanding by some users that an unqualified audit opinion represents an insurance policy against investment losses.
2The shareholders of a bank sue Karen Frank, CPA, for malpractice due to an audit failure that preceded the bank's financial failure. The jury determines that Frank is 60% at fault and that management is 40% at fault. The bank has no financial resources, nor does its management. Under joint and several liability, what is the likely percentage of damages that Frank will ensue?
- A100%
- B50%
- C40%
- DNone of these.
3Which of the following statements is false?
- ANegligence is the failure to exercise reasonable care, thereby causing harm to another person or to property.
- BGross negligence is operating with a reckless disregard for the truth, or the failure to use even minimal care.
- CFraud is an intentional concealment or misrepresentation of a material fact with the intent to deceive another person, causing damage to the deceived person.
- DBreach of contract occurs when a person competently performs a contractual duty.
4The remedies for breach of contract include which of the following?
- ARequiring specific performance of the contract agreement.
- BGranting an injunction to prohibit the auditor from doing certain acts, such as disclosing confidential information.
- CProviding for recovery of amounts lost as a result of the breach.
- DAll of these.
5Litigation costs are the largest single cost faced by audit firms.
- ATrue
- BFalse
6The expectations gap includes a misperception by shareholders that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.
- ATrue
- BFalse
7The three laws most relevant to auditor liability include common law, contract law, and statutory law.
- ATrue
- BFalse
8Negligence occurs when a person fails to perform a contractual duty.
- ATrue
- BFalse
9Examples of breach of contract include violating client confidentiality, failing to provide the audit report on time, and failing to discover material error or material employee fraud.
- ATrue
- BFalse
10To win a claim against the auditor, third parties suing under common law must generally prove that they suffered a loss, that the loss was due to lack of reliance on misleading financial statements, and that the auditor knowingly participated in the financial misrepresentation.
- ATrue
- BFalse
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- Chapter 4 Pre Quiz
- Author
- Kayla Harbaugh
- Language
- English
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