5 Written questions
5 Matching questions
- Private Securities Litigation Reform Act 1995
- Restatement of torts approach
- Causes of Legal Action
- Proportionate Liability
- a defendant would be required to pay a proportionate share of the damage, depending on the degree of fault determined by judge or jury
- b 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
- c failure to exercise reasonable care, thereby causeing harm to another or to property
- d Auditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user
- e Breach of Contract, Negligence
5 Multiple choice questions
- Indirect: can have future impact,
Auditor must follow up to determine if material
If material - Report (to audit committee), make sure adequately disclosed in financial statements
If not material, inform appropriate level of management
- Auditors know audited financial statements were to be used for a particular purpose by a known third party user
- Lots of Fraud in early 2000's which caused the public to question the auditing profession.
- 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
5 True/False questions
Fraud → intentional concealment or misrepresentation of a material fact that causes damage to those deceived. Scienter must be proved.
Regulation S-X → Eastablishes form, content, and requirements of financial statements
Scienter → knowledge on the part of the person making the representations, at the time they are made that they are false.
Contingent-fee cases → if lose case client owes lawyer nothing, if win lawer get a % of winnings.
Class action suits → Eastablishes form, content, and requirements of financial statements