25170835
Description
Quiz by Kayla Harbaugh, updated more than 1 year ago
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Created by Kayla Harbaugh
over 4 years ago
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Question 1
Question
Which of the following factors is not a reason that audit firms experience litigation for business failures, rather than audit failures?
Answer
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Contingent-fee compensation for audit firms
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Joint and several liability statutes
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Class action lawsuits
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A misunderstanding by some users that an unqualified audit opinion represents an insurance policy against investment losses.
Question 2
Question
The shareholders of a bank sue Karen Frank, CPA, for malpractice due to an audit failure that preceded the bank's financial failure. The jury determines that Frank is 60% at fault and that management is 40% at fault. The bank has no financial resources, nor does its management. Under joint and several liability, what is the likely percentage of damages that Frank will ensue?
Answer
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100%
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50%
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40%
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None of these.
Question 3
Question
Which of the following statements is false?
Answer
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Negligence is the failure to exercise reasonable care, thereby causing harm to another person or to property.
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Gross negligence is operating with a reckless disregard for the truth, or the failure to use even minimal care.
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Fraud is an intentional concealment or misrepresentation of a material fact with the intent to deceive another person, causing damage to the deceived person.
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Breach of contract occurs when a person competently performs a contractual duty.
Question 4
Question
The remedies for breach of contract include which of the following?
Answer
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Requiring specific performance of the contract agreement.
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Granting an injunction to prohibit the auditor from doing certain acts, such as disclosing confidential information.
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Providing for recovery of amounts lost as a result of the breach.
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All of these.
Question 5
Question
Litigation costs are the largest single cost faced by audit firms.
Answer
- True
- False
Question 6
Question
The expectations gap includes a misperception by shareholders that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.
Answer
- True
- False
Question 7
Question
The three laws most relevant to auditor liability include common law, contract law, and statutory law.
Answer
- True
- False
Question 8
Question
Negligence occurs when a person fails to perform a contractual duty.
Answer
- True
- False
Question 9
Question
Examples of breach of contract include violating client confidentiality, failing to provide the audit report on time, and failing to discover material error or material employee fraud.
Answer
- True
- False
Question 10
Question
To win a claim against the auditor, third parties suing under common law must generally prove that they suffered a loss, that the loss was due to lack of reliance on misleading financial statements, and that the auditor knowingly participated in the financial misrepresentation.
Answer
- True
- False
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