Solved by verified expert :12) As a
consequence of his failure to adhere to generally accepted auditing standards
in the course of his examination of the Lamp Corp., Harrison, CPA, did not
detect the embezzlement of a material amount of funds by the company’s
controller. As a matter of common law, to what extent would Harrison be liable
to the Lamp Corp. for losses attributable to the theft?
A) He would have
no liability, since the ordinary examination cannot be relied upon to detect
thefts of assets by employees.
B) He would have
no liability because privity of contract is lacking.
C) He would be
liable for losses attributable to his negligence.
D) He would be
liable only if it could be proven that he was grossly negligent.
13) The
preferred defense in third party suits is:
A) lack of duty
to perform.
B) nonnegligent
performance.
C) absence of
causal connection.
D) client fraud.
14)
Three approaches to the application of the foreseen users’ concept are (1) the
Credit Alliance approach, (2) the restatement of torts approach, and (3)
the foreseeable user approach. Summarize each of these three approaches.
15)
Although there is confusion caused by the differing views of liability to third
parties under common law, the movement is clearly away from the foreseeable
user approach.
A)
True
B)
False
16) The
restatement of torts approach to the concept of foreseen users states that any
users that the auditor should have reasonably been able to foresee as being
likely users of financial statements have the same rights as those with privity
of contract.
A)
True
B)
False
17)
The Credit Alliance approach to the concept of foreseen users states
that to be liable to third parties, an auditor (1) must know and intend that
the work product would be used by the third-party for a specific purpose, and (2)
the knowledge and intent must be evidenced by the auditor’s conduct.
A)
True
B)
False
1) An adequate
system of internal control for SEC registrants was originally required by the:
A)
Sarbanes-Oxley Act of 2002.
B) Securities
Act of 1933.
C) Foreign
Corrupt Practices Act of 1977.
D) Securities
Act of 1934.
