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Auditing chapter 4 homework

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Kayla Harbaugh
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Auditing chapter 4 homework

Frage 1 von 20

1

Which of the following is not an incentive for filing lawsuits against audit firms?

Wähle eine der folgenden:

  • Increased complexity of accounting standards

  • Class action lawsuits

  • Joint and several liability doctrine

  • Contingent-fee-based compensation for law firms

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Frage 2 von 20

1

Which of the following statements regarding liability doctrines is not true?

Wähle eine der folgenden:

  • Joint and several liability provides more protection to users who experience losses from relying on misstated financial statements.

  • Under proportionate liability, a defendant’s share of damages depends on the degree of fault determined by the judge or jury.

  • Proportionate liability generally applies to lawsuits filed in federal court.

  • Joint and several liability cannot be applied in class-action lawsuits.

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Frage 3 von 20

1

Which of the following has contributed to a decrease in federal class actions involving audit firms as co-defendants over the last decade?

Wähle eine der folgenden:

  • Supreme Court decisions in Janus Capital Group, Inc., and Stoneridge Investment Partners.

  • Federal restrictions on contingent fees for lawyers in lawsuits filed under the Securities Act of 1934.

  • A growing expectations gap causing investors to view audit reports as insurance against losses.

  • All of the above

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Frage 4 von 20

1

Which of the following statements describes the expectations gap as it relates to audited financial statements?

Wähle eine der folgenden:

  • Investors believe that an unqualified audit report guarantees that an investment in the audited company is risk-free.

  • Investors believe that an unqualified audit report is an insurance policy against losses from a risky investment.

  • Investors believe they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

  • All of the above

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Frage 5 von 20

1

A jury has determined that Jason Pruitt, CPA, is 20% at fault for losses suffered by investors who relied on materially misstated financial statements. The jury found that Pruitt’s co-defendants, the client company and the company’s CEO, are each 40% at fault. The company is bankrupt, and only Pruitt and the CEO have adequate resources to pay damages. Under joint and several liability, what is the likely percentage of damages that Pruitt will pay?

Wähle eine der folgenden:

  • 100% of damages

  • 20% plus a proportionate share of damages attributed to the company

  • 20%

  • 20% plus 50% of damages attributed to the company

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Frage 6 von 20

1

Liability based on federal securities law is known as which type of law?

Wähle eine der folgenden:

  • Statutory law

  • Contract law

  • Commercial law

  • Common law

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Frage 7 von 20

1

Under common law, which of the following is a basis for litigation against an auditor for failure to meet professional standards and responsibilities?

Wähle eine der folgenden:

  • Ordinary negligence

  • Gross negligence

  • Fraud

  • All of the above

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Frage 8 von 20

1

Which is the best definition of scienter?

Wähle eine der folgenden:

  • A wrongful state of mind when making a misrepresentation

  • A material omission of facts

  • Fraudulent conduct in the purchase of a security

  • A casual connection between a misstatement and a material loss

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Frage 9 von 20

1

Generally, auditors can be sued for breach of contract by which of the following parties?

Wähle eine der folgenden:

  • Shareholders

  • Third parties other than shareholders

  • Clients

  • All of the above

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Frage 10 von 20

1

Which of the following is not a basis for a third-party lawsuit against an auditor?

Wähle eine der folgenden:

  • Breach of contract

  • Gross negligence

  • Common law

  • Fraud

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Frage 11 von 20

1

The concept of the third-party beneficiary test was established by which court case?

Wähle eine der folgenden:

  • Credit Alliance Corp. v. Arthur Andersen & Co.

  • Ultramares Corp. v. Touche.

  • Citizens State Bank v. Time, Schmidt, & Co.

  • Rosenblum v. Adler

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Frage 12 von 20

1

Which of the following may an auditor use as a defense under the Securities Act of 1933?

Wähle eine der folgenden:

  • Contributory negligence

  • Scienter

  • Due care

  • Immaterial loss

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Frage 13 von 20

1

Which of the following is not a potential cause for action against the auditor for breach of contract?

Wähle eine der folgenden:

  • Withdrawing from an audit engagement due to unresolved disagreements with management

  • Violating client confidentiality

  • Failing to provide the audit report on time

  • Failing to discover a material error in the financial statements

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Frage 14 von 20

1

Compliance with GAAP was an unsuccessful defense in which of the following court cases?

Wähle eine der folgenden:

  • Ultramares Corp. v. Touche.

  • Ernst and Ernst v. Hochfelder.

  • Herzfeld v. Laventhol, Krekstein, Horwath & Horwath.

  • Credit Alliance v. Arthur Andersen & Co.

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Frage 15 von 20

1

Which of the following would be the first form filed with the SEC describing a major change in corporate governance?

Wähle eine der folgenden:

  • 10-K

  • 10-Q

  • 8-Q

  • 8-K

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Frage 16 von 20

1

To win a lawsuit against an auditor, third parties generally have to prove which of the following?

Wähle eine der folgenden:

  • The parties suffered a loss

  • A loss occurred due to reliance on misleading financial statements

  • The auditor knew, or should have known, financial statements were misleading

  • All of the above

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Frage 17 von 20

1

Which of the following documents must be filed with the SEC under the Securities Act of 1933 before a company can issue new securities to the public?

Wähle eine der folgenden:

  • Form 10-K

  • Form 10-Q

  • Prospectus

  • All of the above

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Frage 18 von 20

1

An audit failure occurs when an audit firm issues an inaccurate audit opinion and fails to comply with auditing standards.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

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Frage 19 von 20

1

Class action lawsuits are designed to encourage multiple lawsuits arising from the same claim.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

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Frage 20 von 20

1

Claims against auditors based on the deep pocket theory are most likely to occur in courts where damages are based on proportionate liability.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

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