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Auditing and Assurance Services

This document discusses legal liability for auditors and accountants. It provides 8 multiple choice questions about factors that contribute to lawsuits against auditors, legislation that serves as the basis for legal actions, and why the number and size of lawsuits remains high. The questions assess understanding of auditor liability under statutory laws like the Sarbanes-Oxley Act of 2002 and common law, as well as strategies firms use like settling out of court to avoid costs and publicity.

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278 views2 pages

Auditing and Assurance Services

This document discusses legal liability for auditors and accountants. It provides 8 multiple choice questions about factors that contribute to lawsuits against auditors, legislation that serves as the basis for legal actions, and why the number and size of lawsuits remains high. The questions assess understanding of auditor liability under statutory laws like the Sarbanes-Oxley Act of 2002 and common law, as well as strategies firms use like settling out of court to avoid costs and publicity.

Uploaded by

Princess Maro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Auditing and Assurance Services, 17e (Arens/Elder/Beasley)

Chapter 5 Legal Liability

5.1 Learning Objective 5-1

1) Which of the following factors does not contribute to the number of lawsuits against auditors?
A) large civil court judgments against CPA firms awarded in a few cases
B) growing awareness of the responsibilities of public accountants by users of financial
statements
C) the simplicity of auditing and accounting functions
D) an increased consciousness by the SEC for its responsibility for protecting investors' interests
Answer: C
Terms: Major factors that have contributed to the recent increase in the number of lawsuits
against auditors
Difficulty: Easy
Objective: LO 5-1
AACSB: Reflective thinking

2) Which of the following does not contain provisions that may serve as a basis for legal actions
against auditors?
A) the Sarbanes-Oxley Act of 2002
B) the Securities Act of 1933
C) the Securities Act of 1934
D) the Dodd-Frank Wall Street Reform and Consumer Protection Act
Answer: D
Terms: Government legislation serving as a basis for legal actions against auditors
Difficulty: Easy
Objective: LO 5-1
AACSB: Reflective thinking

3) Which of the following factors does not explain why the number of lawsuits and the sizes of
awards to plaintiffs in cases involving CPA firms remains high even today?
A) Attorneys are willing to take these types of lawsuits on a contingent-fee basis.
B) Economic changes often result in an increase in the number of business failures.
C) the deep-pocket concept of liability
D) All of the above explain why the number of lawsuits and the sizes of the awards remain high.
Answer: D
Terms: Major factors that have contributed to the continued high number of lawsuits against
auditors
Difficulty: Easy
Objective: LO 5-1
AACSB: Reflective thinking
4) The auditor generally owes a duty of care to third parties who are part of a limited group of
persons whose reliance is "foreseen" by the auditor.
Answer: TRUE
Terms: Liability to clients under common law
Difficulty: Moderate
Objective: LO 5-1
AACSB: Reflective thinking

5) Auditors have generally not been held liable for criminal acts in the courts.
Answer: FALSE
Terms: Liability to clients under statutory and common laws
Difficulty: Moderate
Objective: LO 5-1
AACSB: Reflective thinking

6) Since the Sarbanes-Oxley Act of 2002, both the number of lawsuits and the sizes of awards to
plaintiffs in the courts have been reduced against auditors.
Answer: FALSE
Terms: Liability to clients under statutory and common statutory laws
Difficulty: Moderate
Objective: LO 5-1
AACSB: Reflective thinking

7) Many CPA firms have strategically decided to settle lawsuits brought against them out of
court in order to avoid adverse publicity and costly legal fees.
Answer: TRUE
Terms: CPA firm's strategies in court to settle lawsuits brought against them
Difficulty: Easy
Objective: LO 5-1
AACSB: Reflective thinking

8) There has been, and continues to be, legislative efforts to control litigation costs against CPA
firms by discouraging nonmeritorious lawsuits.
Answer: TRUE
Terms: Legislative efforts to control litigation costs against CPA firms
Difficulty: Easy
Objective: LO 5-1
AACSB: Reflective thinking

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