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5 Written questions

5 Matching questions

  1. Causes of Legal Action
  2. Restatement of torts approach
  3. Negligence
  4. Indirect Illegal Act
  5. Litigation Perspective
  1. a Auditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user
  2. b Result of inadequate audit performance,
    most cases: many estimates made by client are proven wrong,
    Deep pockets theory
  3. c failure to exercise reasonable care, thereby causeing harm to another or to property
  4. d Violations of laws other than those related to reporting: OSHA, FDA, EEOC Laws
  5. e Breach of Contract, Negligence

5 Multiple choice questions

  1. has power to prohibit CPA's from reporting on SEC registrants' financial statments. Can take punitive action against public accounting firms. Auditors are required to report any illegal acts by clients to SEC if client fails to report them
  2. if lose case client owes lawyer nothing, if win lawer get a % of winnings.
  3. Damages ought to be paid to those suffering losses caused by each party. Suffering party can recover full damages from any party. Usually % of fault is the percentage of damages each defendant pays but many cases Management is in bankruptcy so auditor is left to pay everything
  4. Have material effect on financial statements
  5. 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

  1. Controlling LitigationPlace 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.


  2. Unaudited Statements of Nonpublic CompaniesCompilation: 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


  3. Breach of ContractHave material effect on financial statements


  4. Proportionate LiabilityMay 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


  5. Statutory LawLiability is based on federal securities laws or state stutes


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