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5 Written questions

5 Matching questions

  1. CPA Liability
  2. Unaudited Statements of Nonpublic Companies
  3. Restatement of torts approach
  4. Laws for Auditor Liability
  5. Rosenblum Approach
  1. a Compilation: 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
  2. b 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
  3. c 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
  4. d Common Law, Statutory Law
  5. e Auditors know audited financial statements were to be used for a particular purpose, but auditors did not necessarily know the specific user

5 Multiple choice questions

  1. Have material effect on financial statements
  2. liability concepts are developed through court decisions based on negligence, gross negligence, fraud, or breach of contract
  3. when a person fails to perform a contractual duty
  4. 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. failure to use minimal care or operating with a "reckless diregard for the truth" or "reckless behavior"

5 True/False questions

  1. Ultramares ApproachAuditors 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

          

  2. 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

          

  3. Accounting Profession's Credibility CrisisLots of Fraud in early 2000's which caused the public to question the auditing profession.

          

  4. Securities Exchange Commissionhas 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

          

  5. Causes of Legal ActionIndirect: 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

          

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