Chapter 4 Multiple Choice

Under common law, the CPAs who were negligent may mitigate some damages to a client by proving (1) Contributory negligence (2) The CPAs fee was not material (3) The CPAs were not competent to accept the engagement (4) The CPAs negligence was caused by the fact that they had too much work

(1) Contributory negligence, negligence on the part of the plaintiff

The most significant result of the Continental Vending case was that it:

(1) Created a more general awareness of the possibility of auditor criminal prosecution

Which of the follow cases reaffirmed the principles in the Ultramares Case?

(1) The credit Alliance Corp v. Arthur Andersen

If a CPA performs an audit recklessly, the CPA will be liable to third parties who were unknown and not foreseeable to the CPA for

(2) Gross Negligence

The 1136 Tenants' Case was important because of its emphasis upon the legal liability of the CPA when associated with:

(2) It was a landmark case concerning auditors' liability when they are associated with unaudited financial statements

In cases of breach of contract, plaintiff's generally have to prove all of the following, except: (1) The CPA had a duty (2) The CPA has made a false statement (3) The client incurred losses (4) The CPA breached duty

(2) The CPA has made a false statement

Which of the following approaches to auditors' liability is least desirable from he CPA's perspective

(2) The Rosenblum approach provides more 3rd parties the ability to recover damages from the CPA who has performed the engagement with ordinary negligence

Which of the following elements is most frequently necessary to hold a CPA liable to a client? (1) Acted w/ scienter or guilty knowledge (2) Was not independent (3) Failed to exercise due care (4) did not use an engagement letter

(3) Failed to exercise due care

Under the Securities and Exchange Act of 1934, auditors and other defendants are faced with:

(3) Proportionate Liability

Which statement best expresses the factors that purchasers of securities registered under the Securities Act of 1933 need to prove to recover losses from the auditors? (1) The purchasers of securities must prove ordinary negligence by the auditors and reliance on audited financial statements (2) The purchasers of securities must prove that the financial statements were misleading ant hat they relied on them to purchase securities (3) The purchasers of securities must prove that the finical statements were misleading, then the burden of proof is shifted to the auditors to show that the audit was performed with due diligence (4) The purchasers of securities must prove that financial statements were misleading and auditor were negligence

(3) The purchasers of securities must prove that the finical statements were misleading, then the burden of proof is shifted to the auditors to show that the audit was performed with due diligence

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 of this public offering. What is a viable defense?

(4) A CPA may avoid liability under the 1933 at by proving that their negligence was not proximate cause of the plaintiff's loss

If the CPAs provided negligent tax advice to a public company, the client would bring suit under:

(4) Negligent tax advice would ordinarily result in a suit brought under common law