5 Written questions
5 Matching questions
- Joint & Several Liability
- Gross Negligence
- Continental Vending (Ciminal Liability)
- Regulation S-X
- a failure to use minimal care or operating with a "reckless diregard for the truth" or "reckless behavior"
- b Auditors were held criminally liable for gross negligence. Largely responsible for the development of required disclosure of related party transactions
- c knowledge on the part of the person making the representations, at the time they are made that they are false.
- d Eastablishes form, content, and requirements of financial statements
- e 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
5 Multiple choice questions
- Common Law, Statutory Law
- Established the SEC and established requirement for annual audited financial statements
- 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
- liability concepts are developed through court decisions based on negligence, gross negligence, fraud, or breach of contract
- 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
5 True/False questions
Litigation Perspective → designed to prevent multiple suits that might result in inconsistent judgements. Lawyers try to identify every potential member of the class.
Statutory Law → liability concepts are developed through court decisions based on negligence, gross negligence, fraud, or breach of contract
1136 Tenants Corporation → Unaudited statements; importance of engagement letters to establish nature of services provided, need to follow up on unusual findings even when not performing Audit.
Ultramares Approach → Auditors should have realized it was reasonably foreseeable that audited financial statements would be used for routine business purposes. Opens door to liability for ordinary negligence to virtually all third parties who rely on the statements
Fraud → intentional concealment or misrepresentation of a material fact that causes damage to those deceived. Scienter must be proved.