5 Written Questions
5 Matching Questions
- Restatement of torts approach
- Breach of Contract
- Securities Act of 1933
- Indirect Illegal Act
- a when a person fails to perform a contractual duty
- b Violations of laws other than those related to reporting: OSHA, FDA, EEOC Laws
- c intentional concealment or misrepresentation of a material fact that causes damage to those deceived. Scienter must be proved.
- d requires audited financial statements in registration statements of initial public offerings
- e Auditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user
5 Multiple Choice Questions
- failure to exercise reasonable care, thereby causeing harm to another or to property
- accused of wholesale destruction of documents relating to the Enron Coporation collapse. Loss of case put Arthur Andersen out of business. Conviction was overturned by U.S. Supreme Court.
- Place emphasis within firm on complying with GAAS and professional ethics,
investigate prospective clients thoroughly,
obtain a thorough knowledge of clients business,
use engagement letters to prevent misunderstanding, asses risk of errors and irregularities, exercise extreme care in audits of clients with high business risk, carefully prepare and review working papers.
- Auditors were held criminally liable for gross negligence. Largely responsible for the development of required disclosure of related party transactions
- Liability is based on federal securities laws or state stutes
5 True/False Questions
Rosenblum Approach → Auditors know audited financial statements were to be used for a particular purpose by a known third party user
Gross Negligence → failure to use minimal care or operating with a "reckless diregard for the truth" or "reckless behavior"
Accounting Profession's Credibility Crisis → Lots of Fraud in early 2000's which caused the public to question the auditing profession.
Class action suits → designed to prevent multiple suits that might result in inconsistent judgements. Lawyers try to identify every potential member of the class.
Proportionate Liability → 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