Chapter5final.docx

1、Chapter5 finalCHAPTER 5 Multiple-Choice Questions1.easydWhile performing services for their clients, professionals have a duty to provide a level of care which is:a. free from judgment errors.b. superior.c. greater than average.d. reasonable.2.easybAuditors who fail to exercise due care in their per

2、formance of professional services may be liable for:a. punitive liability.b. breach of contract.c. excess liability.d. none of the above.3.easybWhich of the following may give rise to a business failure?a. An erroneous audit opinion is issued.b. Management may make ill-advised business decisions.c.

3、Auditors may fail to uncover employee fraud.d. Poorly trained auditors may perform a companys audit.4.easybA(n) _ failure occurs when an auditor issues an erroneous opinion as the result of an underlying failure to comply with auditing standards.a. businessb. auditc. audit riskd. process5.easyaThe s

4、tandard of due care to which the auditor is expected to adhere is referred to as the:a. prudent person concept.b. common law doctrine.c. due care concept.d. vigilant person concept.6.easycAuditors may be liable to their clients for:a. punitive damages.b. compensatory damages.b. both a and b.c. neith

5、er a nor b.7.easybUnder the laws of agency, partners of a CPA firm may be liable for the work of others on whom they rely. This would not include:a. employees of the CPA firm.b. employees of the audit client.c. other CPA firms engaged to do part of the audit work.d. specialists employed by the CPA f

6、irm to provide technical advice on the audit.8.easyd“Absence of reasonable care that can be expected of a person in a set of circumstances” defines:a. pecuniary negligence.b. gross negligence.c. extreme negligence.d. ordinary negligence.9.easycAn example of a breach of contract would likely include:

7、a. an auditors refusal to return the clients general ledger book until the client paid last years audit fees.b. a banks claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan.c. a CPA firms failure to complete an audit on the agre

8、ed-upon date because the firm had a backlog of other work which was more lucrative.d. none of the above.10.easycPrivity of contract exists between:a. auditor and the federal government.b. auditor and third parties.c. auditor and client.d. all of the above.11.easybAudit contracts (engagement letters)

9、:a. may be either oral or written.b. must be written.c. must be written and notarized.d. must be written if the client is regulated by the Securities and Exchange Commission.12.easydAn individual who is not party to the contract between a CPA and the client, but who is known by both and is intended

10、to receive certain benefits from the contract is known as: a. a third party.b. a common law inheritor.c. a tort.d. a third-party beneficiary.13.easydLaws that have been developed through court decisions rather than by passage through legislative bodies are:a. statutory laws.b. judicial laws.c. feder

11、al laws.d. common laws.14.easyaLaws that have been passed through state legislatures are:a. statutory laws.b. judicial laws.c. federal laws.d. common laws.15.easydThe assessment against a defendant of the full loss suffered by a plaintiff regardless of other parties liability in the wrongdoing is ca

12、lled:a. separate and proportionate liability.b. shared liability.c. unitary liability.d. joint and several liability.16.easyc_ risk represents the possibility that the auditor concludes after conducting an adequate audit that the financial statements were fairly stated when they were actually missta

13、ted.a. Businessb. Processc. Auditd. Failure17.easyaThe assessment against a defendant of that portion of the damage caused by the defendants negligence is called:a. separate and proportionate liability.b. joint and several liability.c. shared liability.d. unitary liability.18.easyaIn third-party sui

14、ts, which of the auditors defenses contends lack of privity of contract?a. Lack of duty.b. Non-negligent performance.c. Contributory negligence.d. Absence of causal connections.19.easycWhich of the following auditors defenses usually means non-reliance on the financial statements by the user?a. Lack

15、 of duty.b. Non-negligent performance.c. Lack of causal connections.d. Contributory negligence.20.easyaThere are a number of things that the AICPA, representing the profession as a whole, can do to reduce the CPAs exposure to lawsuits. One of them is to:a. sanction members for improper conduct and p

16、erformance.b. deal only with clients possessing integrity.c. hire qualified auditors and train and supervise them.d. perform quality audits.21.easybIn connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:a. statistic

17、al sampling techniques were not used on the audit engagement.b. the auditor planned the audit in a negligent manner.c. accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier.d. the fraud was perpetrated by one employee who cir

18、cumvented the existing internal controls.22.mediumbWhich of the following most accurately describes constructive fraud?a. Absence of reasonable care.b. Lack of slight care.c. Knowledge and intent to deceive.d. Extreme or unusual negligence without the intent to deceive.23.mediumcWhich of the followi

19、ng most accurately describes fraud?a. Absence of reasonable care.b. Lack of slight care.c. Knowledge and intent to deceive.d. Extreme or unusual negligence without the intent to deceive.24.mediumaWhich of the following is an illustration of liability to clients under common law?a. Client sues audito

20、r for not discovering a theft of assets by an employee.b. Bank sues auditor for not discovering that borrowers financial statements are misstated.c. Combined group of stockholders sue auditor for not discovering materially misstated financial statements.d. Federal government prosecutes auditor for k

21、nowingly issuing an incorrect audit report.25.mediumcWhich of the following is an illustration of liability under the federal securities acts?a. Client sues auditor for not discovering a theft of assets by an employee.b. Bank sues auditor for not discovering that borrowers financial statements are m

22、isstated.c. Combined group of stockholders sue auditor for not discovering materially misstated financial statements.d. None of the above.26.mediumcA third-party beneficiary is one which: a. has failed to establish legal standing before the court.b. does not have privity of contract and is unknown t

23、o the contracting parties.c. does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract.d. may establish legal standing before the court after a contract has been consummated.27.mediumcIf the CPA negligently failed to properly prepare and fi

24、le a clients tax return, the CPA may be liable for:a. the penalties the client owes the IRS.b. the penalties and interest the client owes.c. the penalties and interest the client owes, plus the tax preparation fee the CPA charged.d. the penalties and interest, the tax preparation fee, and the amount

25、 of tax that was underpaid.28.mediumdHistorically, most major lawsuits against CPA firms have dealt with:a. disputes over income tax preparation services.b. disputes arising in the performance of MAS contracts.c. disputes over the accuracy of bookkeeping services.d. audited and unaudited financial s

26、tatements.29.mediumc“Privileged communication” between client and auditor is:a. available in all federal courts.b. not available in any court.c. available in several states.d. available for matters involving income taxes only.30.mediumdWhich of the following statements is true?a. Gross negligence ma

27、y constitute constructive fraud.b. Constructive fraud is also termed recklessness.c. Fraud requires the intent to deceive.d. All three above are true.31.mediumbFailure of a party to meet its obligations, thereby causing injury to another party to whom a duty was owed, is:a. breach of contract.b. tor

28、t action for negligence.c. constructive fraud.d. fraud.32.mediumdTort actions against CPAs are more common than breach of contract actions because:a. there are more torts than contracts.b. the burden of proof is on the auditor rather than on the person suing.c. the person suing need prove only negli

29、gence.d. the amounts recoverable are normally larger.33.mediumcThe principal issue to be resolved in cases involving alleged negligence is usually:a. the amount of the damages suffered by plaintiff.b. whether to impose punitive damages on defendant.c. the level of care exercised by the CPA.d. whethe

30、r defendant was involved in fraud.34.mediumcIn the auditing environment, failure to meet auditing standards is often:a. an accepted practice.b. a suggestion of negligence.c. conclusive evidence of negligence.d. tantamount to criminal behavior.35.mediumbA common way for a CPA firm to demonstrate its

31、lack of duty to perform is by use of a(n):a. expert witness testimony.b. audit contract, or engagement letter.c. management representation letter.d. confirmation letter.36.mediumaThe prudent person concept establishes that:a. the CPA firm is not expected to make only perfect judgments.b. an audit in accordance with GAAS is subject to limitations and cannot be relied upon f