15 terms

Auditing and Assurance Services: A Systematic Approach, 7/e - Chap 20

Legal Liability
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:
Statutory law
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.
An auditor can be held criminally liable for:
Illegal acts under statutory law.
Auditors can be sued under common law by third parties for:
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.
Joint and several liability means that the auditor can be responsible for:
For the entire loss.
Rule 10(b)-5 relates to:
The Securities Act of 1934.
Which of the following is the best statement of the general standard of performance owed by an auditor in his or her professional work?
To exercise the skill and care of the ordinarily prudent professional in the same circumstances.