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Auditing Chapter 4

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Auditing Chapter 4
True/False Questions

1. Fraud is defined as failure to use reasonable care in the performance of services.

Answer: False Difficulty: Easy

2. Most of the burden of affirmative proof is on the defendant under common law.

Answer: False Difficulty: Medium

3. The Ultramares v. Touche case held that auditors could be held liable to any foreseen third party for ordinary negligence.

Answer: False Difficulty: Medium

4. The Securities Exchange Act of 1934 offers recourse against the auditors to a far greater number of investors than does the Securities Act of 1933.

Answer: True Difficulty: Medium

5. The precedent set by the Hochfelder v. Ernst case is generally believed to have increased auditors ' legal liability.

Answer: False Difficulty: Hard

6. The auditors can be held liable for negligence in audits of financial statements, but not in reviews of financial statements.

Answer: False Difficulty: Easy

7. The results of the Continental Vending Corporation case included the criminal prosecution of auditors for gross negligence.

Answer: True Difficulty: Medium

8. Most charges made against auditors under common law are criminal.

Answer: False Difficulty: Medium

9. The Securities Act of 1934 includes provisions for criminal charges against persons violating the Act.

Answer: True Difficulty: Medium

10. The use of engagement letters is generally designed to prevent lawsuits by third parties against the auditors.

Answer: False Difficulty: Medium

Multiple Choice Questions

11. 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
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