Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 5, Problem 16.2MCQ
To determine
Identify the element that a plaintiff should prove to hold a CPA who signs off on financial statements in a registration statement liable for misrepresentation in the financial statements under section 11 of the 1933 Act.
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In a common law action against an accountant, lack of privity is a viable defense ifthe plaintiff(1) is the client’s creditor who sues the accountant for negligence.(2) can prove the presence of gross negligence that amounts to a reckless disregardfor the truth.(3) is the accountant’s client.(4) bases the action upon fraud.
Individuals who believe they relied on misstated financial statements to make a decision andhave suffered losses as a result will issue an action known as aa. Breach of contract.b. Tort.c. Securities litigation.d. Constructive fraud.
Which of the following in NOT a legal element of proof required to recover for defamation? A. The defendant made a true statement of fact. B. The statement was communicated (published) to a third party or parties. C. The statement was made on an unprivileged occasion. D. The statement damaged the reputation of the subject
Chapter 5 Solutions
Auditing And Assurance Services
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - Prob. 8RQCh. 5 - Prob. 9RQCh. 5 - Prob. 10RQ
Ch. 5 - What potential sanctions does the SEC have against...Ch. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14.1MCQCh. 5 - Prob. 14.2MCQCh. 5 - Prob. 14.3MCQCh. 5 - Prob. 15.1MCQCh. 5 - Prob. 15.2MCQCh. 5 - Prob. 15.3MCQCh. 5 - Prob. 16.1MCQCh. 5 - Prob. 16.2MCQCh. 5 - Prob. 16.3MCQCh. 5 - Prob. 17DQPCh. 5 - Prob. 18DQPCh. 5 - Prob. 19DQPCh. 5 - Prob. 20DQPCh. 5 - Prob. 21DQPCh. 5 - Prob. 22DQPCh. 5 - Prob. 23DQPCh. 5 - Prob. 24DQPCh. 5 - Prob. 27DQPCh. 5 - Prob. 28C
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- What does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence?arrow_forwardWhat elements does a plaintiff have to prove to be successful in a case against a negligent auditor?arrow_forwardThe Commissioner can force a taxpayer to produce his/its accounting records if the taxpayer refuses to provide the same during audit. A. True B. Falsearrow_forward
- Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements? A. The CPA is liable only to third parties in privity of contract with the CPA B. The CPA is liable only to known users of the financial statements C. The CPA probably is liable to any person who suffered a loss as a result of the fraud D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinionarrow_forward1) Using the categories included in the professional standards, embezzlement is an example of: a)other illegal acts. b)misappropriation of assets. c)fraudulent financial reporting. d)an error. 2) Using the categories included in the professional standards, inappropriately and intentionally failing to expense expired amounts of the prepaid insurance is an example of a)misappropriation of assets. b)other illegal acts. c)fraudulent financial reporting. d)direct effect illegal act 3)A financial statement audit should be designed to obtain reasonable assurance that the financial statements are free of material misstatement due to: a)misappropriation of assets only. b)fraudulent financial reporting only.c)neither fraudulent financial reporting nor misappropriation of assets. d)both fraudulent financial reporting and misappropriation of assets 4)A financial statement audit should be designed to obtain reasonable assurance that the financial statements are free of material…arrow_forwardAuditors may be held liable to both their clients and third parties under common law. a. What must a client prove to recover its losses from the auditors under common law? b. In a court that adheres to the precedent set by the Ultramares v. Touche case, what must an ordinary third party prove to recover losses from the auditors under common lawarrow_forward
- An attorney may impeach an opposing party’s witness by showing/proving that the witness: A. Has been convicted of a misdemeanor. B. Made prior consistent statements. C. Has a reputation for truthfulness. D. Is influence by bias or self-interest.arrow_forwardA group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoidliability under the common law, AOW must demonstrate which of the following?a. The investors actually suffered a loss.b. The investors relied on the financial statements audited by AOW.c. The investors’ loss was a direct result of their reliance on the audited financial statements.d. The audit was conducted in accordance with generally accepted auditing standards andwith due professional care.arrow_forwardWhat are the consequences for a CPA who commits an Act Discreditable?arrow_forward
- LO 3 An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is: A financial institution that the auditor knew was the primary beneficiary of the audit, suing under common law. A stockholder suing under common law. A financial institution that was unknown to the auditor loaned money to the client based on the audit financial statements, but the auditor knew only that the client would use the statements to obtain a loan from some financial institution. The plaintiff is suing under common law. An investor suing under the 1934 Securities Exchange Act. An investor suing under the 1933 Securities Act.arrow_forwardAn investor or creditor believes that they have suffered harm due to the unexpected the bankruptcy of a large corporation: Required: Can that investor or creditor sue the auditor of the large corporation under contract law? Explain. If the investor or creditor chooses to sue the auditor of the large corporation under tort law, what must they prove before their claim can succeed? How can the auditor contest a claim of negligence?arrow_forwardWhich of the following is NOT an element required to recover to establish liability for negligent infliction of emotional distress claim? A. The defendant engaged in extreme and outrageous conduct. B. The conduct subjected the plaintiff to public humiliation. C. The conduct caused severe emotional distress. D. The conduct resulted in physical symptoms or bodily harm.arrow_forward
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