Question 1

Audit risk only applies to auditors who audit public companies.

Accepted Answer

A) True 
 B)False

Question 2

A registration statement is a:

Accepted Answer

A)   Document filed by the auditor with the SEC for new securities being offered.
B)   Document filed by a client with the SEC for new securities being offered.
C)   Can be filed by either the client or auditor.
D)   None of the above.E) B) and C)
F) All of the above

Question 3

In the Barchris case, the Court held that the auditor is not liable for subsequent events occurring after the audit report date but before the registration date.

Accepted Answer

A) True 
 B)False

Question 4

A summary judgment:

Accepted Answer

A)   Is brought by the plaintiff's attorney.
B)   Is brought by the defendant's attorney.
C)   Seeks to dismiss the case before evidence is presented at trial.
D)   Both b and c.E) A) and C)
F) A) and D)

Question 5

The term "privity" is an example of the relationship between auditor and plaintiff.

Accepted Answer

A) True 
 B)False

Question 6

Audit risk involves the risk that:

Accepted Answer

A)   The financial statements contain a misstatement.
B)   The ICFR fails to report material internal control weaknesses and the audit report also fails to mention this fact.
C)   The client lied to management.
D)   All of the above.E) B) and C)
F) A) and B)

Question 7

Damages can be:

Accepted Answer

A)   Compensatory, but limited to the loss incurred.
B)   Compensatory, and include both the loss incurred and an amount for punitive damages.
C)   Compensatory, but limited to the amount set by each state.
D)   Both a and b.E) A) and D)
F) A) and C)

Question 8

The Securities Act of 1933 requires that the plaintiff show that the financial statements were relied upon.

Accepted Answer

A) True 
 B)False

Question 9

Scienter means:

Accepted Answer

A)   The auditor exercised poor professional judgment.
B)   The auditor knowingly sought to deceive the plaintiff.
C)   The auditor failed to exercise due professional care.
D)   All of the above.E) None of the above
F) A) and B)

Question 10

The complaint in a civil suit filed by a plaintiff has to prove standing.

Accepted Answer

A) True 
 B)False

Question 11

In order to be held guilty under RICO, the plaintiff must prove that:

Accepted Answer

A)   The auditor was negligent in detecting fraud.
B)   The auditor was negligent in detecting material misstatements.
C)   The auditor participated in the operations and management of the fraudulent act.
D)   All of the above.E) A) and B)
F) A) and C)

Question 12

The defendant in a lawsuit involving negligence brought by the audit client is the client.

Accepted Answer

A) True 
 B)False

Question 13

"Fraud on the Market" theory holds that:

Accepted Answer

A)   The auditor need not be liable for damages if the market ignored the audit report.
B)   The auditor is liable for damages to those who relied on financial statements it audited that contained a material misstatement.
C)   The plaintiffs do not have to show they relied on the financial statements, but merely that the market used the information contained in the financial statements to affect the stock price.
D)   Both a and b.E) A) and B)
F) A) and D)

Question 14

Joint and severally liable means that:

Accepted Answer

A)   Each defendant is liable for the whole judgment if the other party cannot pay.
B)   Each defendant is liable for only his portion of the judgment.
C)   Each defendant is liable for the compensatory, but not punitive judgment.
D)   None of the above.E) A) and C)
F) B) and C)

Question 15

Section 10b-5 of the Securities Act of 1934 targets fraud.

Accepted Answer

A) True 
 B)False

Question 16

The Sarbanes-Oxley Act of 2002 (SOX) :

Accepted Answer

A)   Sets auditor penalties in sections 104 and 105.
B)   Requires the PCAOB to inspect public accounting firms that audit public companies.
C)   Requires an annual audit for all publically traded companies.
D)   Both a and b.E) All of the above
F) A) and B)

Question 17

Generally, the auditor:

Accepted Answer

A)   Cannot control audit risk.
B)   Can control audit risk.
C)   Controls audit risk to the extent of audit testing.
D)   None of the above.E) C) and D)
F) B) and D)

Question 18

One reason for negligence is that the auditor failed to follow GAAS.

Accepted Answer

A) True 
 B)False

Question 19

In order for punitive damages to be awarded, the auditors must be guilty of:

Accepted Answer

A)   Negligence.
B)   Gross negligence.
C)   Fraud.
D)   Either b or c.E) A) and B)
F) B) and C)

Question 20

The Barchris case set precedent in that:

Accepted Answer

A)   The auditor was found guilty of fraud.
B)   The auditor is responsible for reporting material differences that arise between the audit report date and the registration statement date.
C)   The auditor is responsible for all differences that arise between the audit report date and the registration statement date.
D)   All of the above.E) None of the above
F) C) and D)

Exam 4: Legal Environment Affecting Audits Pt Iii Executing an Integrated Audit

A registration statement is a:

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Generally, the auditor:

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In order to be held guilty under RICO, the plaintiff must prove that:

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Audit risk involves the risk that:

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Scienter means:

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The complaint in a civil suit filed by a plaintiff has to prove standing.

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The term "privity" is an example of the relationship between auditor and plaintiff.

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The Sarbanes-Oxley Act of 2002 (SOX) :

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"Fraud on the Market" theory holds that:

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Audit risk only applies to auditors who audit public companies.

Correct AnswerverifiedShow Answer

One reason for negligence is that the auditor failed to follow GAAS.

Correct AnswerverifiedShow Answer

In order for punitive damages to be awarded, the auditors must be guilty of:

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The Barchris case set precedent in that:

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The defendant in a lawsuit involving negligence brought by the audit client is the client.

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Section 10b-5 of the Securities Act of 1934 targets fraud.

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The Securities Act of 1933 requires that the plaintiff show that the financial statements were relied upon.

Correct AnswerverifiedShow Answer

Damages can be:

Correct AnswerverifiedShow Answer

In the Barchris case, the Court held that the auditor is not liable for subsequent events occurring after the audit report date but before the registration date.

Correct AnswerverifiedShow Answer

Joint and severally liable means that:

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A summary judgment:

Correct AnswerverifiedShow Answer

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