5 Written Questions
5 Matching Questions
- Rosenblum Approach
- Securities Act of 1933
- CPA Liability
- Common Law
- Contingent-fee cases
- a liability concepts are developed through court decisions based on negligence, gross negligence, fraud, or breach of contract
- b requires audited financial statements in registration statements of initial public offerings
- c 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
- d Auditors should have realized it was reasonably foreseeable that audited financial statements would be used for routine business purposes. Opens door to liability for ordinary negligence to virtually all third parties who rely on the statements
- e if lose case client owes lawyer nothing, if win lawer get a % of winnings.
5 Multiple Choice Questions
- May conduct investigations and disciplinary proceedings on registered CPA firm and professional employee. Include monetary damages, suspension of firms from engagements with public companies, regerral of criminal cases to Justice Department
- 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
- Breach of Contract, Negligence
- Lots of Fraud in early 2000's which caused the public to question the auditing profession.
- designed to prevent multiple suits that might result in inconsistent judgements. Lawyers try to identify every potential member of the class.
5 True/False Questions
Restatement of torts approach → Auditors know audited financial statements were to be used for a particular purpose by a known third party user
Indirect Illegal Act → Have material effect on financial statements
Proportionate Liability → defendant would be required to pay a proportionate share of the damage, depending on the degree of fault determined by judge or jury
Elements of Proof Under Common Law → 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.
Litigation Perspective → Eastablishes form, content, and requirements of financial statements