Which of the following is not an activity that would take place during the legal process stage of the four general stages in the initiation and disposition of audit-related disputes (according to Chapter 20)?
Hiring another public accounting firm to investigate potential fraud.
Which of the following is the best defense a CPA firm can assert to a suit for common-law fraud based on its unqualified opinion on materially false financial statements?
Lack of scienter.
One of the most common ways for a CPA firm to demonstrate a "lack of duty" type of legal defense is by the use of:
An engagement letter.
Which of the following statements is correct in most jurisdictions regarding the liability of a CPA who negligently expresses an opinion on an audit of a client's financial statements?
The CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion.
Based on the "Ultramares Doctrine" (1931), which of the following parties would a court likely hold an accountant liable to for ordinary negligence?
Parties in the Privity of Contract: Yes; Foreseen parties: No
Individuals and other companies that believe they relied on misstated financial statements of a publicly traded company in making an investment decision, and lost money as a result, will generally bring action against the external auditors based on:
When a company registers a public security offering in accordance with the provisions of the Securities Act of 1933, the law provides the investor with:
Audited financial information about the company.
Which of the following is true with regard to the 2002 Sarbanes-Oxley Act legislation that followed the Enron & WorldCom accounting scandals?
It lengthened the statue of limitations for actions related to Rule 10b-5 claims.
All of the following are provisions of the Sarbanes-Oxley Act of 2002 except which one?
Elimination of the Auditing Standard Board's authority to set standards for the audit of non-public companies.
To prevail in a third party suit alleging negligence, the third party must prove the following:
The auditor had a duty to the third party plaintiff to exercise due care.