Exam 15: Legal Liability

Auditors' primary defense against a claim for ordinary negligence is to offer evidence that the audit had been conducted in accordance with generally accepted auditing standards.

Donalds & Company,CPAs,audited the financial statements included in the annual report submitted by Markum Securities,Inc.,to the Securities and Exchange Commission.The audit was improper in several respects.Markum is now insolvent and unable to satisfy the claims of its customers.Customers have instituted legal action against Donalds based on Section 10(b)and Rule 10(b)-5 of the Securities Exchange Act of 1934.Which of the following is likely to be Donalds' best defense?

The first significant case under section 11 of the Securities Act of 1933 charging auditors with not conducting a reasonable investigation was

Under the Securities Exchange Act of 1934,entities are required to report to the public about changing auditors on

How does the Securities Act of 1933,which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement,expand auditors' liability to purchasers of securities beyond that of common law?

The Ultramares case holds auditors to a higher level of responsibility than the Rosenblum v.Adler case in terms of common law liability to third parties.

_________________________________ is the lack of reasonable care in the performance of professional services.

____________________________________ is a claim by plaintiffs that auditors did not perform services in the manner stated in the engagement letter.

According to Sarbanes-Oxley,accountants performing an audit or review must maintain all engagement documentation for a period of

Entities desiring to issue equity or debt must provide a set of financial statements to any prospective purchaser.This set of financial statements and other information for prospective purchasers is known as a

Which of the following parties is most likely to recover losses resulting from acts of ordinary negligence from auditors?

Which of the following would be auditors' most likely defense in an action brought under the Securities Exchange Act of 1934?

Failure to provide any level care in fulfilling a duty owed to another party,including reckless disregard for the truth,is called

Which of the following elements,if present,would support a finding of constructive fraud on the part of auditors?

Since the Ernst & Ernst v.Hochfelder court decision,plaintiffs suing for damages under Rule 10b-5 must prove

A public entity subject to the periodic reporting requirements of the Securities Exchange Act of 1934 must file an annual report with the SEC known as the

Sun Corp.approved a merger plan with Cord Corp.Among the determining factors in approving the merger was Cord's financial statements audited by Frank & Co.,CPAs.Sun had engaged Frank to audit Cord's financial statements.While performing the audit,Frank failed to discover certain irregularities that later caused Sun to suffer substantial losses.For Frank to be liable under common law liability,Sun at a minimum must prove that Frank

Under the Securities Act of 1933,which of the following defenses is related to auditors' performing a reasonable investigation of the financial statements?

Suppose that the auditors in the preceding question participated knowingly in commission of violations of securities laws (with managers and directors of the audit client).What is the auditors' likely obligation?

Which of the following is not part of the definition of proportionate liability adopted by the Private Securities Litigation Reform Act?