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5 Written questions

5 Matching questions

  1. CPA Liability
  2. Deep Pocket Theory
  3. Procedures of Illegal Acts
  4. Contingent-fee cases
  5. Litigation Perspective
  1. a Sue those who can pay. Want the firm to settle to make a quick buck even if firm did nothing wrong.
  2. b if lose case client owes lawyer nothing, if win lawer get a % of winnings.
  3. c 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
  4. d 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
  5. e Result of inadequate audit performance,
    most cases: many estimates made by client are proven wrong,
    Deep pockets theory

5 Multiple choice questions

  1. Have material effect on financial statements
  2. Auditors know audited financial statements were to be used for a particular purpose by a known third party user
  3. liability concepts are developed through court decisions based on negligence, gross negligence, fraud, or breach of contract
  4. Established the SEC and established requirement for annual audited financial statements
  5. knowledge on the part of the person making the representations, at the time they are made that they are false.

5 True/False questions

  1. 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

          

  2. Restatement of torts approachAuditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user

          

  3. Gross Negligencefailure to exercise reasonable care, thereby causeing harm to another or to property

          

  4. PCAOBMay conduct investigations and disciplinary proceedings on registered CPA firm and professional employee. Include monetary damages, suspension of firms from engagements with public companies, regerral of criminal cases to Justice Department

          

  5. Private Securities Litigation Reform Act 1995If 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

          

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