5 Written Questions
5 Matching Questions
- Private Securities Litigation Reform Act 1995
- Gross Negligence
- Securities Act of 1933
- Elements of Proof Under Common Law
- Unaudited Statements of Nonpublic Companies
- a If Public company, auditor must inform Board of Directors for illegal acts by client.
BOD has one day to inform SEC
If don't; auditor has one day to inform SEC, or resign from audit and inform SEC,
SEC may impose fines on auditor if not informed of illegal act
- b requires audited financial statements in registration statements of initial public offerings
- c Compilation: Preparation of financial statements based upon information provided to CPA's
not intended to lend assurance as to statements' reliability
Review: Limited verification procedures, provides limited assurance to statements reliability
- d failure to use minimal care or operating with a "reckless diregard for the truth" or "reckless behavior"
- e Duty - CPA accepted a duty of due professinal care.
Breach of Duty - CPA breached contract.
Losses - Suffered by Plaintiff.
Causation - Losses were caused by CPA's performance.
5 Multiple Choice Questions
- failure to exercise reasonable care, thereby causeing harm to another or to property
- knowledge on the part of the person making the representations, at the time they are made that they are false.
- Result of inadequate audit performance,
most cases: many estimates made by client are proven wrong,
Deep pockets theory
- May exceed that of other professions because:
number of parties suffering significant losses,
possibly millions of investors as well as firms creditors,
amounts can be excessive in some cases exceeding the limits of professional liability insurance
- Common Law, Statutory Law
5 True/False Questions
Breach of Contract → Have material effect on financial statements
Restatement of torts approach → Auditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user
Statutory Law → Liability is based on federal securities laws or state stutes
Securities Act of 1934 → requires audited financial statements in registration statements of initial public offerings
1136 Tenants Corporation → Unaudited statements; importance of engagement letters to establish nature of services provided, need to follow up on unusual findings even when not performing Audit.