Question 1

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Accepted Answer

A)   other public accounting firms engaged to do part of the work.
B)   employees of the public accounting firm.
C)   employees of the client.
D)   specialists called upon to provide technical information to the public accounting firm.

Question 2

Auditing is highly regulated, subject to many regulatory influences, including:
1) professional bodies
2) stock exchanges
3) government regulatory agencies
4) state and federal legislation

Accepted Answer

A)   1, 2, & 4
B)   1, 2, & 3
C)   1, 3, & 4
D)   1, 2, 3, & 4

Question 3

Liability to third parties is a contentious issue in auditing.

Accepted Answer

A) True 
 B)False

Question 4

Many of the major legal cases against public accountants have dealt with:

Accepted Answer

A)   disputes over income tax preparation services.
B)   disputes arising in the performance of MAS contracts.
C)   audited financial statements.
D)   disputes over the accuracy of bookkeeping services.

Question 5

The Financial Reporting Council (FRC) :

Accepted Answer

A)   is the authority for producing auditing standards.
B)   monitors individual auditors.
C)   monitors individual engagements.
D)   can seek information about disciplinary actions. A

Question 6

It is clear from s.199A of the Corporations Act that auditors:

Accepted Answer

A)   can design clauses in letters of engagement to exempt or indemnify an auditor from or against any legal liability that would otherwise attach to the auditor.
B)   have the defence of contributory negligence available to them.
C)   cannot contract out of their duty to client companies.
D)   all of the above C

Question 7

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

Accepted Answer

There are many steps individual practiti...

Question 8

In the AGC case, the court held the view that communication between AGC and the auditor:

Accepted Answer

A)   established proximity.
B)   indicated that reliance was reasonable.
C)   was evidence of a necessary special relationship.
D)   did not bring about a relationship giving rise to a duty of care.

Question 9

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

Accepted Answer

A)   the audit report is out of date by the time of publication.
B)   the auditor might be negligent.
C)   an inappropriate audit opinion might be issued as a result of not complying with auditing standards.
D)   an unqualified audit opinion might be issued when the financial statements are materially misstated.

Question 10

The auditor's duty to inform management extends to nonmaterial irregularities.

Accepted Answer

A) True 
 B)False

Question 11

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Accepted Answer

A)   Australia
B)   England
C)   Canada
D)   United States

Question 12

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

Accepted Answer

A) True 
 B)False

Question 13

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Accepted Answer

A)   it is an implied part of the contract entered into by any professional and his or her client.
B)   professional standards require it.
C)   the criminal law of fraud requires it.
D)   all of the above

Question 14

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

Accepted Answer

This statement, made in the judgement in the Kingston Cotton Mills case, refers to the auditor's duty to detect fraud and irregularities.It means that the auditor is not expected to track down every possible fraudulent activity or irregularity but, more reasonably, to act as a watchdog by planning an audit such that there is a reasonable expectation of detecting fraud and error.

Question 15

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Accepted Answer

A)   the auditor performing important parts of the work failed to discover a close relationship between the treasurer and the cashier.
B)   statistical sampling techniques were not used on the audit engagement.
C)   the auditor planned the work in a hasty and inefficient manner.
D)   the fraud was perpetrated by one trusted client employee, who circumvented the existing internal controls.

Question 16

A privity letter should NOT be provided:

Accepted Answer

A)   under any circumstances.
B)   if the audit is being conducted under the Corporations Act.
C)   if the third party seeking it fails to acknowledge in writing the potential inadequacy of the audit report for its purpose.
D)   if reliance is foreseeable.

Question 17

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Accepted Answer

A)   is an officer of the client company.
B)   is an audit-critical employee of the client company.
C)   has an investment in the company.
D)   all of the above

Question 18

Which of the following is an illustration of auditor's liability to a client?

Accepted Answer

A)   Federal government prosecutes auditor for knowingly issuing an incorrect audit report.
B)   Combined group of stockholders sue auditor for not discovering materially misstated financial statements.
C)   Bank sues auditor for not discovering that borrower's financial statements are misstated.
D)   Client sues auditor for not discovering a theft of assets by an employee.

Question 19

The Columbia Coffee and Tea judgement:

Accepted Answer

A)   sought to apply a common sense approach.
B)   endorsed the judgement made in the AGC case.
C)   was applied by the High Court in its Esanda decision.
D)   all of the above

Question 20

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Accepted Answer

A) True 
 B)False

Exam 2: Auditors’ legal environment

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Correct Answer
verified

Auditing is highly regulated, subject to many regulatory influences, including: 1) professional bodies 2) stock exchanges 3) government regulatory agencies 4) state and federal legislation

Correct Answer
verified

Liability to third parties is a contentious issue in auditing.

Correct Answer
verified

Many of the major legal cases against public accountants have dealt with:

Correct Answer
verified

The Financial Reporting Council (FRC) :

Correct Answer
verified
A

It is clear from s.199A of the Corporations Act that auditors:

Correct Answer
verified
C

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

Correct Answer
verified
There are many steps individual practiti...
View Answer

In the AGC case, the court held the view that communication between AGC and the auditor:

Correct Answer
verified

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

Correct Answer
verified

The auditor's duty to inform management extends to nonmaterial irregularities.

Correct Answer
verified

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Correct Answer
verified

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

Correct Answer
verified

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Correct Answer
verified

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Correct Answer
verified

A privity letter should NOT be provided:

Correct Answer
verified

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Correct Answer
verified

Which of the following is an illustration of auditor's liability to a client?

Correct Answer
verified

The Columbia Coffee and Tea judgement:

Correct Answer
verified

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Correct Answer
verified

Exam 2: Auditors’ legal environment

Under the laws of agency, partners of a public accounting firm may be liable for the works of others on whom they rely.This would NOT include:

Correct AnswerverifiedShow Answer

Auditing is highly regulated, subject to many regulatory influences, including: 1) professional bodies 2) stock exchanges 3) government regulatory agencies 4) state and federal legislation

Correct AnswerverifiedShow Answer

Liability to third parties is a contentious issue in auditing.

Correct AnswerverifiedShow Answer

Many of the major legal cases against public accountants have dealt with:

Correct AnswerverifiedShow Answer

The Financial Reporting Council (FRC) :

Correct AnswerverifiedA

It is clear from s.199A of the Corporations Act that auditors:

Correct AnswerverifiedC

Discuss some of the steps individual practising auditors can take to minimise their legal liability.

Correct AnswerverifiedThere are many steps individual practiti...View AnswerShow Answer

In the AGC case, the court held the view that communication between AGC and the auditor:

Correct AnswerverifiedShow Answer

Audit reports are an insufficient basis for financing decisions by a diligent financier because:

Correct AnswerverifiedShow Answer

The auditor's duty to inform management extends to nonmaterial irregularities.

Correct AnswerverifiedShow Answer

Which country is responsible for the passage of the Sarbanes-Oxley Act of 2002?

Correct AnswerverifiedShow Answer

Proportionate liability is the risk an auditor takes that an entity will fail, and he or she is liable for all losses incurred by the entity.

Correct AnswerverifiedShow Answer

Professionals have long had a legal duty to provide a reasonable level of care while performing work for those they serve because:

Correct AnswerverifiedShow Answer

Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Correct AnswerverifiedShow Answer

A privity letter should NOT be provided:

Correct AnswerverifiedShow Answer

Sections 324CE-324CH list specific conditions of contraventions of the independence requirements.The specific conditions include circumstances where the auditor:

Correct AnswerverifiedShow Answer

Which of the following is an illustration of auditor's liability to a client?

Correct AnswerverifiedShow Answer

The Columbia Coffee and Tea judgement:

Correct AnswerverifiedShow Answer

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Correct AnswerverifiedShow Answer

Correct Answer
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A

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C

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There are many steps individual practiti...
View Answer

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