SB C
Differences in the diligence that users want auditors to use in detecting and reporting fraud and the diligence that auditors are able and required to provide, cause a(n) to occur.
Blank 1: expectation Blank 2: gap
Section 13 of the Securities Act requires any suits to be brought within year(s) after discovery of the materially misstated statement or omission or within year(s) after the public offering.
Blank 1: one or 1 Blank 2: three or 3
Substandard performance that may lead to tort liability include negligence, negligence and fraud.
Blank 1: ordinary Blank 2: gross
An unintentional breach of duty owed to another party because of a lack of reasonable
Blank 1: ordinary Blank 2: negligence
An unintentional breach of duty owed to another party because of a lack of reasonable care is called
Blank 1: ordinary Blank 2: negligence
Because auditors are considered "experts" regarding the fairness of financial statements, Section 11(b) of the Securities Act imposes liability for auditors for acts representing
Blank 1: ordinary Blank 2: negligence
Third parties known by name to the auditors for whose principal benefit the audit or other accounting service is performed are called
Blank 1: primary Blank 2: beneficiaries
An important component of a registration statement filed with the SEC is a legal document offering securities for sale. which is called a(n)
Blank 1: prospectus
Auditors are liable if they are aware the auditors' opinion and financial statements are to be used to some third party under the
Blank 1: restatement Blank 2: torts
True or false: The significance of Ultramares is that it established an obligation to those in privity with auditors for gross negligence and fraud.
False
Which of the following must be true in order for a third-party to be able to sue an auditor?
The financial statements were not presented according to GAAP. The user's loss must be caused by reliance on financial statements.
True or false: An expectation gap occurs when users' expectations exceed the diligence that auditors are able and required to provide.
True
Under Section 11 of the Securities Act, auditors may use the ______ defense by proving the audit was conducted in accordance with GAAS.
due diligence
Under the Securities Act, auditors are required to ______.
ensure the statements are fairly stated as of the date the registration statement becomes effective audit the statements as of the most recent financial statement date
Members of an unlimited class is another term for ______.
foreseeable parties
The most liberal interpretation of third-party liability is that owned to ______.
foreseeable parties
Persons the auditors are aware of that could be reasonably expected to rely on the auditors' work are referred to as ______.
foreseen parties
Section 24 of the Securities Act may impose criminal penalties for auditor acts of ______.
fraud gross negligence
Under Section 11 of the Securities Act auditors ______.
have potential liability to a large class of parties are liable for ordinary negligence must prove a reasonable investigation was conducted
Section 17 of the Securities Act ______.
is the antifraud section
Clients or third-party users of financial statements are called the in legal action against auditors.
plaintiffs
In a legal action involving auditors, ______ generally assert all possible causes of action.
plaintiffs
The relationship of direct involvement between parties to a contract is known as
privity
Section 24 of the Securities Act ______.
sets forth criminal penalties including monetary fines, prison terms or both
When privity of contract exists, plaintiffs must demonstrate ______.
the auditor' actions caused the loss they suffered an economic loss auditors failed to exercise the appropriate level of professional care
Third parties known by name to the auditors for whose principal benefit the audit or other accounting service is performed are called ______.
primary beneficiaries
Section 11 of the Securities Act treats all persons as ______.
reasonably foreseeable
The main defenses for auditors in a third party lawsuit are ______.
GAAS was followed due professional care was exercised
Under Section 11 of the Securities Act, the burden of proof regarding professional care rests with the ______.
auditors
Auditors provide underwriters with that address issues such as independence and the fairness of the registrant's financial statements
Blank 1: comfort Blank 2: letters
Auditors can be liable to individuals when they violate a specific law which is referred to as
Blank 1: statutory Blank 2: liability
In certain jurisdictions auditors may claim that the client's actions were, in part, responsible for the loss. This is called .
Blank 1: contributory Blank 2: negligence
Auditors may be sued because they are the only party with resources against which recovery can be made under the theory.
Blank 1: deep Blank 2: pockets
It is unlawful to "use the mails or instruments of transportation in interstate commerce" in an effort to defraud others under Section of the Securities Act.
17
An auditor's claim that the client's economic loss was caused be a factor other than the auditor's failure to exercise appropriate levels or professional care or breach of contract is called the
Blank 1: causation Blank 2: defense
When there is no violation of a written statute, writtenBlank 1Blank 1 written , Incorrect Unavailable lawBlank 2Blank 2 law , Correct Unavailable uses legal precedent to identity the fault and responsibilities of parties.
Blank 1: common Blank 2: law
A significant risk involved with and engagements is that the client may fail to understand the nature of the service being given.
Blank 1: compilation Blank 2: review
The Ultramares opinion stated that if auditors' failures to exercise the appropriate level of professional care constituted gross negligence, grounds might exist for concluding the auditors had engaged in
Blank 1: constructive Blank 2: fraud
Which of the following statements is correct regarding economic losses and third-party legal action against auditors?
Economic losses must have been caused by reliance on financial statements not presented according to GAAP.
Which of the following statements regarding common law are correct?
Judges follow a sense of justice or morality when no legal precedent can be found. Jurisdiction is generally a state court in the state where the action occurred. It uses legal precedence to identify fault and responsibility when there is no violation of a written law.
A complaint arising from the auditors' failure to exercise the appropriate level of professional care can result in ______.
a tort action
Auditor failure to complete the engagement by a specified deadline is ______.
breach of contract
Under Section 11 of the Securities Act, auditors may use the ______ defense by proving the something other than the materially misstated financial statements caused the plaintiffs' losses.
causation
Auditor defenses against third-party lawsuits include ______.
causation defense lack of auditor liability lack of auditor negligence
Breach of contract actions are generally brought against auditors by ______.
clients
A lawsuit claiming the auditors did not perform the audit in an appropriate manner is a ______ law action.
common
Third parties must demonstrate the auditors failed to exercise the appropriate level of professional care, the financial statements contained a material misstatement and an economic loss occurred that was caused by reliance on the materially misstated statements in order to bring a suit against auditors under law.
common
Auditor defenses against third-party lawsuits do not include ______.
contributory negligence
In order to avoid misunderstandings and disagreements ______.
it should be explained that a review service is less extensive than an audit clients must understand a compilation engagement does not involve gathering sufficient appropriate evidence compilation and review engagements should include engagement letters
Auditors may ______.
only be sued for economic losses from acts of fraud committed by a client's employees that a GAAS audit should have identified
The Securities Act provides that no person may lawfully buy, sell, offer to buy, or offer to sell any security by means of interstate commerce unless a(n) ______ is effective.
registration statement
Section 13 of the Securities Act ______.
restricts auditors' liability exposure to a determinable time span
Accountability for a violation under the Securities Act is an example of ______ liability.
statutory
The primary basis for a decision in a(n) case is whether the party's actions have violated the law as written in the code.
statutory
Clients may seek legal action against auditors as a result of ______.
substandard performance breach of contract
To bring a suit against auditors under common law, third parties must demonstrate ______.
the financial statements contained a material misstatement the loss was caused by reliance on the materially misstated financial statements they suffered an economic loss
Under Section 11 of the Securities Act the plaintiff (investor) must prove ______.
they suffered an economic loss the financial statements contained a material misstatement
To bring a suit against auditors under common law, third parties must demonstrate ______.
they suffered an economic loss the financial statements contained a material misstatement the loss was caused by reliance on the materially misstated financial statements
In connection with a registration and sale of securities, auditor commonly provide comfort letters to ______.
underwriters
