ACC 411 ACC411 Chapter 4 & 5 Homework (SNHU)
ACC 411 ACC/411 ACC411 Chapter 4 & 5 Homework (SNHU)
Under common law, auditors are generally liable to the client for:
Under the 1934 Securities Exchange Act auditors are liable to ordinary trade creditors for:
The Securities Exchange Act of 1934 applies to:
Meglow Corporation, a closely held manufacturer of dresses and blouses, sought a loan from Busch Factors. Busch had previously extended $50,000 credit to Meglow but refused to lend any additional money without obtaining copies of Meglow’s audited financial statements.
Meglow contacted the public accounting firm of Seavers & Dean to perform the audit. In arranging for the audit, Meglow clearly indicated that its purpose was to satisfy Busch Factors as to the corporation’s sound financial condition and to obtain an additional loan of $100,000. Seavers & Dean accepted the engagement, performed the audit in a negligent manner, and rendered an unqualified opinion. If an adequate audit had been performed, the financial statements would have been found to be misleading.
Meglow submitted the audited financial statements to Busch Factors and obtained an additional loan of $70,000. Busch refused to lend more than that amount. After several other factors also refused, Meglow finally was able to persuade Maxwell Department Stores, one of its customers, to lend the additional $30,000. Maxwell relied upon the financial statements audited by Seavers & Dean.
Meglow is now in bankruptcy, and Busch seeks to collect from Seavers & Dean the $120,000 it loaned Meglow. Maxwell seeks to recover from Seavers & Dean the $30,000 it loaned Meglow.
Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors.
Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson
If a CPA performs an audit recklessly, the CPA will be liable to third parties who were unknown and not foreseeable to the CPA for:
Which of the following approaches to auditors’ liability is least desirable from the CPA’s perspective?
If the CPAs provided negligent tax advice to a public company, the client would bring suit under:
Under common law, the CPAs who were negligent may mitigate some damages to a client by proving:
Under the Securities Exchange Act of 1934, auditors and other defendants are faced with:
A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?
Which of the following elements is most frequently necessary to hold a CPA liable to a client?
Which statement best expresses the factors that purchasers of securities registered under the Securities Act of 1933 need to prove to recover losses from the auditors?
The 1136 Tenants’ case was important because of its emphasis upon the legal liability of the CPA when associated with:
The major reason auditors gather evidence is to:
Evidence is generally considered sufficient when:
A principal purpose of a representation letter from management is to:
Which of the following is not a financial statement assertion made by management?
Which of the following business characteristics is not indicative of high inherent risk?
As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter? V
Which of the following statements best describes why auditors investigate related party transactions?
Of the following, which is the least reliable type of audit evidence?
Analytical procedures are most likely to detect:
Which of the following is not a primary approach to auditing an accounting estimate?
A primary purpose of the audit working papers is to:
In what section of the audit working papers would a long-term lease agreement be filed?
Which of the following is not a function of audit working papers?
In using the work of a specialist, the auditors referred to the specialist’s findings in their report. This would be an appropriate reporting practice if the:
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:
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