Auditing Chapter 4

Under common law, the CPAs who were negligent may mitigate some damages to a client by proving:

Contributory negligence

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

Created more awareness of the possibility of auditor criminal prosecution.

Which of the following cases reaffirmed the principles in the Ultramares case?

Credit Alliance Corp. v. Arthur Andersen & Co.

Which of the following elements is most frequently necessary to hold CPA liable to a client?

Failed to exercise due care

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:

Gross negligence

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

Proportionate liability

In cases of breach of contract, plaintiffs generally have to prove all of the following, except:

The CPA made a false statement

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

The Rosenblum approach

A CPA issued an unqualified opinion on the financial statement 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 statement, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?

The false statement is immaterial in the overall context of the financial statements.

Which statement best expresses the factors that purchasers of securities registered under the Securities Act of 1933 need to prove to recover losses from auditors?

The purchasers of securities must prove that the financial statements were misleading: then, the burden of proof is shifted to the auditors to show that the audit was performed with "due diligence"

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

Unaudited financial statement

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

Common law