Description
Test Bank For Principles of Auditing & Other Assurance Services 21st Edition
Principles of Auditing & Other Assurance Services, 21e (Whittington)
Chapter 4 Legal Liability of CPAs
1) Negligence is defined as failure to use reasonable care in the performance of services.
Answer: TRUE
Difficulty: 1 Easy
Topic: Sources of CPA Liability
Learning Objective: 04-02 Distinguish between CPAs’ liability under common law and under statutory law.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Most of the burden of affirmative proof is on the defendant under common law.
Answer: FALSE
Difficulty: 2 Medium
Topic: CPAs’ Liability to Their Clients under Common Law
Learning Objective: 04-03 Explain the proof requirements for clients and third parties seeking recovery from CPAs under common law and the defenses available to CPAs.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) The Ultramares v. Touche case established that auditors could be held liable to a known third party for ordinary negligence.
Answer: TRUE
Difficulty: 2 Medium
Topic: CPAs’ Liability to Their Clients under Common Law
Learning Objective: 04-03 Explain the proof requirements for clients and third parties seeking recovery from CPAs under common law and the defenses available to CPAs.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) The Securities Exchange Act of 1933 offers recourse against the auditors to a far greater number of investors than does the Securities Act of 1934.
Answer: FALSE
Difficulty: 2 Medium
Topic: Liability to Third Parties under Statutory Law
Learning Objective: 04-04 Explain the proof requirements for plaintiffs under statutory law and the defenses available to the auditors.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) The precedent set by the Ernst & Ernst v. Hochfelder case is generally believed to have increased auditors’ legal liability.
Answer: FALSE
Difficulty: 3 Hard
Topic: Liability to Third Parties under Statutory Law
Learning Objective: 04-04 Explain the proof requirements for plaintiffs under statutory law and the defenses available to the auditors.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) The auditors can be held liable for negligence in audits of financial statements, but not in reviews of financial statements.
Answer: FALSE
Difficulty: 1 Easy
Topic: Sources of CPA Liability
Learning Objective: 04-02 Distinguish between CPAs’ liability under common law and under statutory law.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) The results of the Continental Vending Corporation case did not result in the criminal prosecution of auditors for gross negligence.
Answer: FALSE
Difficulty: 2 Medium
Topic: Comparison of the 1933 and 1934 Acts
Learning Objective: 04-05 Compare the requirements for CPA liability under the Securities Act of 1933 with those under the Securities Exchange Act of 1934.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Most charges made against auditors under common law are criminal.
Answer: FALSE
Difficulty: 2 Medium
Topic: CPAs’ Liability to Their Clients under Common Law
Learning Objective: 04-03 Explain the proof requirements for clients and third parties seeking recovery from CPAs under common law and the defenses available to CPAs.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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