Auditing Chapter 4

3561 WordsApr 26, 201315 Pages
True/False Questions 1. Fraud is defined as failure to use reasonable care in the performance of services. Answer: False Difficulty: Easy 2. Most of the burden of affirmative proof is on the defendant under common law. Answer: False Difficulty: Medium 3. The Ultramares v. Touche case held that auditors could be held liable to any foreseen third party for ordinary negligence. Answer: False Difficulty: Medium 4. The Securities Exchange Act of 1934 offers recourse against the auditors to a far greater number of investors than does the Securities Act of 1933. Answer: True Difficulty: Medium 5. The precedent set by the Hochfelder v. Ernst case…show more content…
Under the Restatement of Torts approach to liability the auditor is generally liable to the bank which subsequently grants the loan for: A) Lack of due diligence. B) Lack of good faith. C) Gross negligence, but not ordinary negligence. D) Either ordinary or gross negligence. Answer: D Difficulty: Hard 16. An auditor knew that the purpose of her audit was to render reasonable assurance on financial statements that were to be used for the application for a loan; the auditor did not know the identity of the bank that would eventually give the loan. Under the foreseeable third party approach the auditor is generally liable to the bank which subsequently grants the loan for: A) Lack of due diligence. B) Lack of good faith. C) Gross negligence, but not ordinary negligence. D) Either ordinary or gross negligence. Answer: D Difficulty: Hard 17. Which of the following forms of organization is most likely to protect the personal assets of any partner, or shareholder who has not been involved on an engagement resulting in litigation? A) Professional corporation. B) Limited liability partnership. C) Partnership. D) Subchapter M Incorporation. Answer: B Difficulty: Medium 18. Under which common law

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