 |
| 1 | |
Actions initiated by third-party users of financial statements who seek damages because of auditor negligence or other inappropriate performance are called |
| | A) | Malfeasance. |
| | B) | Tort. |
| | C) | Breach of contract. |
| | D) | Constructive fraud. |
|
|
|
| 2 | |
Under common law liability, which of the following must be demonstrated to prevail against auditors in a claim for ordinary negligence?
- A loss was suffered.
- Auditors owed the plaintiffs a duty to perform.
- Plaintiffs relied on the financial statements.
- The loss was caused by reliance on the financial statements.
|
| | A) | 1, 2, 3 |
| | B) | 1, 3, 4 |
| | C) | 2, 3, 4 |
| | D) | 1, 2, 3, 4 |
|
|
|
| 3 | |
Mike wishes to assert a claim against auditors because he sold products on credit to MUT Company based on reliance on MUT's audited financial statements. MUT subsequently went bankrupt and Mike was unable to collect the amounts owed to him. For Mike to be successful, the case must be brought in a jurisdiction that supports auditors' liability for ordinary negligence to: |
| | A) | Parties that are in privity of the contract. |
| | B) | Primary beneficiaries. |
| | C) | Foreseen parties. |
| | D) | Clients. |
|
|
|
| 4 | |
The legal doctrine that states that a successful plaintiff can recover the full amount of damages from any defendant that has the ability to pay is called |
| | A) | Joint and several liability. |
| | B) | Proportionate liability. |
| | C) | Complete liability. |
| | D) | Total liability. |
|
|
|
| 5 | |
The SEC regulation that governs disclosures in annual reports other then financial statements is |
| | A) | Securities Act of 1933. |
| | B) | Securities Exchange Act of 1934. |
| | C) | Regulation S-X. |
| | D) | Regulation S-K. |
|
|
|
| 6 | |
As a direct response to the financial frauds in Enron and WorldCom, the Sarbanes-Oxley Act |
| | A) | Requires CEOs and CFOs to certify financial statements and related disclosures. |
| | B) | Prohibits CEOs from being chairman of the Board of Directors. |
| | C) | Requires audit committees to be comprised entirely of individuals with accounting and auditing expertise. |
| | D) | Requires all annual and quarterly financial information to be audited. |
|
|
|
| 7 | |
Auditors have greater liability under the Securities Act of 1933 than under either common law or the Securities Exchange Act of 1934. Which of the following is an explanation for this greater liability? |
| | A) | The auditor is liable for treble damages under the Securities Act of 1933. |
| | B) | The plaintiff does not have to prove that the financial statements were misstated. |
| | C) | The plaintiff does not have to prove that they relied on the financial statements. |
| | D) | The plaintiff does not have to prove that damages were suffered. |
|
|
|
| 8 | |
Which of the following cases provides auditors with the greatest exposure to liability to nonshareholder third parties under common law? |
| | A) | Ultramares Corp. v. Touche. |
| | B) | Credit Alliance v. Arthur Andersen. |
| | C) | Rosenblum v. Adler. |
| | D) | Escott v. BarChris Construction Corp. |
|
|
|
| 9 | |
In order to prevail against auditors under the Securities Exchange Act of 1934, the plaintiff must prove the auditor acted in such a manner as to: |
| | A) | Breach the terms of the engagement letter. |
| | B) | Violate the AICPA Code of Conduct. |
| | C) | Demonstrate intention to deceive (scienter). |
| | D) | Demonstrate ordinary negligence during the audit examination. |
|
|
|
| 10 | |
The primary litigation reform contained in the Private Securities Litigation Reform Act is |
| | A) | Limiting auditor exposure to judgments based on the doctrine of proportionate liability. |
| | B) | Establishing legal requirements for privileged communications between auditors and clients. |
| | C) | Shifting the burden of proof in the 1934 Act to auditors, rather than investors in securities. |
| | D) | Limiting monetary damages to certain levels. |
|
|
.