Quiz based on Auditing and Assurance Services 14e by Arens
Auditor and the federal government.
Auditor and third parties.
Auditor and client.
Auditor and client attorney.
The Sarbanes-Oxley Act of 2002.
The Racketeer Influenced and Corrupt Organization Act.
The Federal False Statements Statute.
The Federal Mail Fraud Statute.
An auditor’s refusal to return the client’s general ledger book until the client paid last year’s audit fees.
A bank’s claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan.
A CPA firm’s failure to complete an audit on the agreed-upon date because the firm had a backlog of other work which was more lucrative.
An auditor’s claim that the client staff is unqualified.
Yes Yes
No No
Yes No
No Yes
Free from judgment errors.
Superior.
Greater than average.
Reasonable.
Pecuniary negligence.
Gross negligence.
Extreme negligence.
Ordinary negligence.
Yes Yes
No No
Yes No
No Yes
The antifraud provisions.
The new issues provisions.
The full-employment act for accountants.
The RICO provisions.
Punitive liability.
Breach of contract.
Excess liability.
Criminal charges.
The amount of the damages suffered by plaintiff.
Whether to impose punitive damages on defendant.
The level of care exercised by the CPA.
Whether defendant was involved in fraud.
Client sues auditor for not discovering a theft of assets by an employee.
Bank sues auditor for not discovering that borrower’s financial statements are misstated.
Combined group of stockholders sue auditor for not discovering materially misstated financial statements.
Auditor sues client for not cooperating during engagement.
An accepted practice.
A suggestion of negligence.
Conclusive evidence of negligence.
Tantamount to criminal behavior.
8-K form.
10-K form.
10-Q form.
S-1 form.
Provide sufficient reliable information to the investing public who purchases securities in the marketplace.
Establish the qualifications for accountants who are members of the profession.
Eliminate incompetent attorneys and accountants who participate in the registration of securities to be offered to the public.
Provide a set of uniform standards and tests for accountants, attorneys, and others who practice before the Securities and Exchange Commission.
Ordinary negligence.
Gross negligence.
Knowledge and intent to deceive.
Financial gain at the expense of the plaintiff.
The penalties the client owes the IRS.
The penalties and interest the client owes.
The penalties and interest the client owes, plus the tax preparation fee the CPA charged.
The penalties and interest, the tax preparation fee, and the amount of tax that was underpaid.
Yes Yes Yes
Yes No No
Yes Yes No
No No No
Private Securities Litigation Reform Amendment.
Securities Litigation Uniform Standards Act of 1998.
Racketeer Influenced and Corrupt Organization Act.
U.S. Securities Claims Reform Act.
The auditor was fraudulent.
The auditor was grossly negligent.
There was a written contract.
There is a close causal connection between the auditor’s behavior and the damages suffered by the client.
Suspend a CPA from auditing SEC clients.
Prohibit a CPA from accepting new SEC clients for a period of time.
Require a CPA to participate in continuing-education programs and make changes in their practice.
Revoke a CPA license.
Client sues auditor for not discovering a theft of assets by an employee.
Bank sues auditor for not discovering that borrower’s financial statements are misstated.
Combined group of stockholders sue auditor for not discovering materially misstated financial statements.
Federal government prosecutes auditor for knowingly issuing an incorrect audit report.
King is not in privity of contract.
The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards.
Lynch & Merritt were not guilty either of gross negligence or fraud.
Lynch & Merritt were not aware of the King-Wilson surety relationship.
Available in all federal courts.
Not available in any court.
Available in several states.
Available for matters involving income taxes only.
The court’s reaffirmation that the burden of proof was on the plaintiff to prove the auditor was negligent.
The affirmation of the increased auditor’s responsibility when performing an S-1 review, a review of events subsequent to the balance sheet, for registration statements.
The increased auditor responsibility when associated with unaudited financial statements.
The court’s refusal to allow the percentage-of-completion method of accounting for revenues.
Private Securities Litigation Reform Act.
Public Securities Damages and Settlements Act.
Racketeer Influenced and Corrupt Organization Act.
U.S. Securities Claims Reform Act.
Greater emphasis on subsequent events procedures.
New standards for unaudited statements.
A broader definition of third-party beneficiaries.
More companies to file annual reports with the SEC.
Breach of contract.
Tort action for negligence.
Constructive fraud.
Fraud.
Requires auditors to review and evaluate systems of internal control as a part of an audit.
Requires SEC registrants to maintain a reasonably complete and accurate set of records and an adequate system of internal control.
Requires auditors to review client’s internal control system in a manner which is thorough enough to judge whether client meets the requirements of the FCPA.
Requires auditors to file a report with the SEC if client’s internal control system is inadequate.
The date of the financial statements.
The date the registration statement becomes effective.
The date of the audit report.
One year beyond the date of the financial statements.
Every company with securities traded on national and over-the-counter exchanges.
Every company with securities traded on national and over-the-counter exchanges.
Every company issuing new securities.
Every corporation which is chartered by a state government.
He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees.
He would have no liability because privity of contract is lacking.
He would be liable for losses attributable to his negligence.
He would be liable only if it could be proven that he was grossly negligent.
The amount of the potential recovery is the original purchase price plus punitive damages.
It deals with the information in registration statements and prospectuses.
It concerns only the reporting requirements for companies issuing new securities.
The only parties that can recover from auditors are original purchasers of securities.
Prescribe specific auditing procedures to detect fraud concerning inventories and accounts receivable of companies engaged in interstate commerce.
Deny lack of privity as a defense in third-party actions for gross negligence against the auditors of public companies.
Determine accounting principles for the purpose of financial reporting by companies offering securities to the public.
Require a change of auditors of governmental entities after a given period of years as a means of ensuring auditor independence.
Elise would have no personal liability for negligence.
Gregory & Hedrick is not liable for Elise’s negligence because CPAs are generally considered to be independent contractors.
Gregory & Hedrick would not be liable for Elise’s negligence if Winters disobeyed specific instructions in the performance of the audits.
Gregory & Hedrick can recover against its insurer on its malpractice policy even if one of the partners was also negligent in reviewing Elise’s work.
The CPA firm is not expected to make only perfect judgments.
An audit in accordance with GAAS is subject to limitations and cannot be relied upon for complete assurance that all errors and irregularities will be found.
The courts do not require that the auditor become the insurer or guarantor of the accuracy of the statements.
All CPAs are considered prudent.
Furnish to the underwriters an opinion that the March 31, 2007 statements are fairly presented subject to year-end audit adjustments.
Give negative assurance as to the March 31, 2007 financial statements but disclaim an opinion on these statements.
Inform the underwriters that no comfort letter is possible without an audit of the financial statements for the three months ended March 31, 2007.
Furnish to the underwriters an adverse opinion covering financial statements for the three months ended March 31, 2007.
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