Exam 4: The Legal Liability of Auditors Part Two: Planning and Risk

The court found that Casey, an auditor, had performed a negligent audit of Royal Treatment Ltd, but the plaintiff did not receive damages because the court found insufficient proof of causation. Causation means that:

Due professional care does not require:

When performing an audit, an auditor would most likely be considered negligent if they failed to:

Mars Ltd wished to acquire the ordinary shares of Saturn Ltd and engaged Sarah & Co. to audit the financial report of Saturn Ltd. Sarah & Co. failed to discover a significant liability when performing the audit. In a common law action Against Sarah & Co., Mars Ltd, at a minimum, must prove:

The 'Second Report of the Inquiry into the Law of Joint and Several Liability' in January 1995 recommended:

The CLERP 9 reforms now provide for limitation of auditor's liability through:

An auditor finds evidence that warehouse staff are fraudulently claiming overtime. The auditor should:

Smith & Jones rendered an unmodified auditor's opinion on the financial report of a company that sold shares in a public offering. Based on a false statement in the financial report, Smith & Jones is being sued by an investor Who purchased shares in this public offering. Which of the following represents a viable defence?

Smart issued an unmodified auditor's opinion on the 2012 financial report of Max Ltd, which was filed with ASIC.Smart did not detect material misstatements in the financial report as a result of negligence in the performance of the audit. Based upon the financial report, Bird purchased shares in Max Ltd. Shortly afterwards, Max Ltd Became insolvent, causing the price of the shares to decline drastically. Bird has commenced legal action Against Smart for damages. Smart's best defence to such an action would be that:

The Pacific Acceptance case established that:

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

An auditor's duty of care to a client would most likely be breached if the auditor failed to:

The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:

In the Caparo case, the court held that the auditor owes a duty of care to:

An auditor discovers a likely fraud during an audit, but concludes that its effects, if any, could not be material enough to affect the auditor's opinion. The auditor should:

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

Common law requires that the auditor:

FMC Electronics Ltd engaged the accounting firm of Crosby, Seals & Anderson to perform its annual audit. The firm performed the audit in a competent, non-negligent manner and billed FMC for $16 000, the agreed fee. Shortly After delivery of the audited financial report, Robert Hightower, the assistant controller, disappeared, taking with him $28000 of FMC's funds. It was then discovered that Hightower had been engaged in a highly sophisticated, novel Defalcation scheme during the past year. He had previously embezzled $35 000 of FMC's funds. FMC has refused To pay the auditor's fee and is seeking to recover the $63 000 that was stolen by Hightower. Which of the following Is correct?

If an audit firm is being sued by a third party for common-law fraud based upon a materially false financial report, which of the following is the best defence which the auditors could assert?

The auditor's responsibility for the detection of an illegal act is the same as the auditor's responsibility for the detection of an error when the illegal act: