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CPA Legal Responsibilities and Liabilities

The document contains 6 multiple choice questions related to auditing standards and procedures: 1. Question 1 asks about the development of an overall audit strategy and detailed audit approach, with the answer being planning. 2. Question 2 is about preparing a written audit program for every audit, with the related standard being supervision of assistants. 3. Question 3 asks what a successor auditor would normally do after accepting an audit client, with the answer being inquiring of the predecessor auditor. 4. Question 4 is about obtaining an understanding of a continuing audit client's business, with the answer being reviewing prior working papers and the permanent client file.

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Paula Mae Dacanay
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39 views2 pages

CPA Legal Responsibilities and Liabilities

The document contains 6 multiple choice questions related to auditing standards and procedures: 1. Question 1 asks about the development of an overall audit strategy and detailed audit approach, with the answer being planning. 2. Question 2 is about preparing a written audit program for every audit, with the related standard being supervision of assistants. 3. Question 3 asks what a successor auditor would normally do after accepting an audit client, with the answer being inquiring of the predecessor auditor. 4. Question 4 is about obtaining an understanding of a continuing audit client's business, with the answer being reviewing prior working papers and the permanent client file.

Uploaded by

Paula Mae Dacanay
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Legal Responsibilities 

 
1. Which one of the following, if present, would support a finding of constructive fraud on the
part of a CPA? 
a. Privity of contract.  c.   Intent to deceive. 
b. Reckless disregard.  d.   Ordinary negligence.  
 
2. The limitation of auditor liability under contract law is known as 
a. Privity of contract.  c.   Contributory liability. 
b. Statutory liability. d.   Common law liability. 
 
3. The auditor's defense of contributory negligence is most likely to prevail when 
a. Third party injury has been minimal. 
b. The auditor fails to detect fraud resulting from management override of the
control structure. 
c. The client is privately held as contrasted with a public company. 
d. Undetected errors have resulted in materially misleading financial statements. 
 
4. Mix and Associates, CPAs, issued an unqualified opinion on the financial statements of
Glass Corp. for the year ended December 31, 2005.  It was determined later that Glass'
treasurer had embezzled P3,000,000 from Glass during 2005.  Glass sued Mix because of
Mix's failure to discover the embezzlement.  Mix was unaware of the embezzlement.  Which
of the following is Mix's best defense? 
a. The audit was performed in accordance with GAAS. 
b. The treasurer was Glass' agent and, therefore, Glass was responsible for preventing
the embezzlement. 
c. The financial statements were presented in conformity with GAAP. 
d. Mix had no actual knowledge of the embezzlement. 
 
5. The factor that distinguishes constructive fraud from actual fraud is 
a. Materiality c.   Quality of internal control. 
b. Type of error or irregularity  d.   Intent. 
 
6. Working papers prepared by a CPA in connection with an audit engagement are owned
by the CPA, subject to certain limitations.  The rationale for this rule is to a. Protect the
working papers from being subpoenaed. 
[Link] the basis for excluding admission of the working papers as evidence because of
the privileged communication rule. 
c. MULTIPLE CHOICE QUESTIONS
d.
e. 1. The development of a general strategy and a detailed approach for the expected nature,
timing,
f. and extent of audit refers to :

g. a. Supervision
h. b. Audit procedures
i. c. Directing
j. d. Planning

k.
l. 2. The auditor should consider the nature, extent, and timing of the work to be performed and
m. should prepare a written audit program for every audit. Which audit standard is most closely
n. related to this requirement?
o. a. The audit is to be performed by a person or persons having adequate technical training and
p. proficiency as an auditor.
q. b. In all matters relating to the assignment, an independent mental attitude is to be maintained
r. by the auditor(s).
s. c. Due professional care is to be exercised in the planning and performance of the audit and
t. preparation of the report.
u. d. The work is to be adequately planned and assistants, if any, are to be properly supervised.
v.
w. 3. Which of the following would a successor auditor normally perform after acceptance of an audit
x. client?
y. a. Inquiry of predecessor auditor regarding the client.
z. b. Review the SEC filings of the client.
aa. c. Inquiry of bankers regarding the client.
bb. d. Review of predecessor auditor working papers.
cc.
dd. 4. To obtain an understanding of a continuing client’s business in planning an audit, an auditor
ee. most likely would
ff. a. Perform tests of details of transactions and balances.
gg. b. Review prior-year working papers and the permanent file for the client.
hh. c. Read specialized industry journals.
ii. d. Reevaluate client’s internal control environment.

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