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Objective 5-1
1)
Discuss three major factors that have contributed to the recent increase in the
number of lawsuits against auditors and the size of awards to plaintiffs.
1)
A(n) ________ failure occurs when an auditor issues an erroneous opinion
because it failed to comply with requirements of auditing standards.
A)
business
B)
audit
C)
ethics
D)
process
2)
The expectation gap:
A)
exists between the auditor and the SEC.
B)
exists because auditors guarantee the accuracy of the financial statements.
C)
often results in unwarranted lawsuits against the auditor.
D)
is a legal concept supported by the federal courts.
3) Distinguish
between what is meant by business failure and audit failure.
4)
Audit risk is the risk there will be an audit failure for a given audit
engagement.
A)
True
B)
False
5)
The term “audit failure” refers to the situation when the auditor has
followed auditing standards yet still fails to discover that the client’s
financial statements are materially misstated.
A)
True
B)
False
1)
In the performance of an audit, a CPA:
A)
is legally liable for detecting an immaterial client fraud.
B)
must strictly follow GAAP for privately held clients.
C)
must exercise constructive professional care in the performance of their audit
responsibilities.
D)
must exercise due professional care in the performance of their audit
responsibilities.
2)
If an auditor fails to fulfill a certain requirement in the contract, they may
be guilty of:
A)
contract fraud.
B)
breach of contract.
C)
constructive fraud.
D)
criminal neglect.
