Question 1

Accountants are not subject to prosecution under Bill C-22, known informally as the
"proceeds of crime" legislation.

Accepted Answer

A) True 
 B)False

Question 2

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Accepted Answer

A) True 
 B)False

Question 3

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

Accepted Answer

A)  A contract relationship exists between an accountant acting as a fiduciary and a client.
B)  An accountant acting as fiduciary owed a duty of care to the client.
C)  An accountant acting as fiduciary has scope for the exercise of some discretion or power.
D)  An accountant acting as fiduciary is required to issue a report.E) A) and B)
F) All of the above

Question 4

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Accepted Answer

A) True 
 B)False

Question 5

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Accepted Answer

A) True 
 B)False

Question 6

While conducting an audit, Larson & Larson Chartered Accountants failed to detect a material misstatement in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a prospectus for a public offering of securities made by the client.Larson knew that its opinion and the financial statements would be used for this purpose.Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities?

Accepted Answer

A)  The purchaser must prove that Larson was negligent in conducting the audit.
B)  The purchaser must prove that Larson knew of the material misstatements.
C)  Larson will not be liable if they had reasonable grounds to believe the financial statements were accurate.
D)  Larson will be liable unless the purchaser did not rely on the financial statements.E) None of the above
F) A) and B)

Question 7

Who would be considered a reasonably foreseeable third party for an auditor?

Accepted Answer

A reasonably foreseeable third party wou...

Question 8

Beckler & Associates CAs issued an unqualified opinion on the financial statements of Queen Ltd.The financial statements contained misstatements that resulted in a material overstatement of Queen's net worth.Queen provided the audited financial statements to Mac Bank in connection with a loan made by Mac to Queen.Beckler knew that the financial statements would be provided to Mac.Queen defaulted on the loan.Mac sued Beckler to recover the losses associated with Queen's default.Which of the following must Mac prove in order to recover?
I.Beckler was negligent in conducting the audit.
II.Mac relied on the financial statements.

Accepted Answer

A)  I only.
B)  II only.
C)  Both I and II.
D)  Neither I nor II.E) B) and D)
F) B) and C)

Question 9

Foreseeable third parties are best described as

Accepted Answer

A)  Management of the company.
B)  Those that have direct involvement through a contract.
C)  Those third parties who will rely on the audit and are specifically known by the auditor.
D)  Those third parties who potentially will rely on the audit but are not specifically known by the auditor.E) A) and B)
F) A) and C) D

Question 10

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

Accepted Answer

A)  Is the client's creditor who sues the accountant for negligence.
B)  Can prove the presence of gross negligence that amounts to a reckless disregard for the truth.
C)  Is the accountant's client.
D)  Bases the action upon fraud.E) B) and D)
F) All of the above

Question 11

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

Accepted Answer

A)  Third parties with privity and contracted parties.
B)  Any party that suffered a loss.
C)  Shareholders only.
D)  All parties with privity.E) All of the above
F) B) and C)

Question 12

Which of the following is not an element of a successful negligence action against auditors?

Accepted Answer

A)  There must be proof that damage resulted.
B)  The plaintiff must be a known user of the financial statements.
C)  There must be a legal duty of care to the plaintiff.
D)  There must be a reasonable connection between the breach of duty of care and resulting losses.E) B) and C)
F) A) and C)

Question 13

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Accepted Answer

A)  The recipient of funds when someone dies.
B)  A party for whose benefit the audit or service is being performed.
C)  The client.
D)  The shareholders of the company.E) All of the above
F) C) and D)

Question 14

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Accepted Answer

A) True 
 B)False

Question 15

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Accepted Answer

A)  If the purchaser is guilty of contributory negligence.
B)  If the CA can prove due care in the audit.
C)  Unless the purchaser can prove privity with the CA.
D)  Unless the purchaser can prove scienter on the part of the CA.E) A) and C)
F) A) and D)

Question 16

Third-party plaintiffs bringing action under common law need not prove

Accepted Answer

A)  They were damaged or suffered a loss.
B)  Reliance on the financial statements.
C)  The financial statements were direct cause of loss.
D)  Breach of contract.E) All of the above
F) B) and D) D

Question 17

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Accepted Answer

A) True 
 B)False  True

Question 18

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Accepted Answer

There existed a legal duty of care to th...

Question 19

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Accepted Answer

A) True 
 B)False

Question 20

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

Accepted Answer

A)  Dupuis v.Pan American Mines.
B)  Hedley Byrne & Co.Ltd.V.Heller & Partners Ltd.
C)  Caparo Industries PLC v.Pickman et al.
D)  Haig v.Bamford et al.E) B) and C)
F) C) and D)

Exam 5: Legal Liability

Accountants are not subject to prosecution under Bill C-22, known informally as the "proceeds of crime" legislation.

Correct Answer
verified

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Correct Answer
verified

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

Correct Answer
verified

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Correct Answer
verified

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Correct Answer
verified

Correct Answer
verified

Who would be considered a reasonably foreseeable third party for an auditor?

Correct Answer
verified
A reasonably foreseeable third party wou...
View Answer

Correct Answer
verified

Foreseeable third parties are best described as

Correct Answer
verified
D

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

Correct Answer
verified

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

Correct Answer
verified

Which of the following is not an element of a successful negligence action against auditors?

Correct Answer
verified

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Correct Answer
verified

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Correct Answer
verified

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Correct Answer
verified

Third-party plaintiffs bringing action under common law need not prove

Correct Answer
verified
D

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Correct Answer
verified
True

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Correct Answer
verified
There existed a legal duty of care to th...
View Answer

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Correct Answer
verified

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

Correct Answer
verified

Exam 5: Legal Liability

Accountants are not subject to prosecution under Bill C-22, known informally as the "proceeds of crime" legislation.

Correct AnswerverifiedShow Answer

In a common law action against accountant all that a plaintiff must prove is that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Correct AnswerverifiedShow Answer

In the Lac Minerals v.Corona Resources, which was one of the three factors to consider in determining if a fiduciary duty exists?

Correct AnswerverifiedShow Answer

Auditors are increasingly obligated to report illegal acts to third parties outside the company in which they occurred.

Correct AnswerverifiedShow Answer

The Securities and Exchange Commission in the U.S.will hold a negligent auditor liable under common law.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Who would be considered a reasonably foreseeable third party for an auditor?

Correct AnswerverifiedA reasonably foreseeable third party wou...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Foreseeable third parties are best described as

Correct AnswerverifiedD

In a common law action against an accountant, lack of privity is a viable defence if the plaintiff

Correct AnswerverifiedShow Answer

When an auditor is found guilty of a fraudulent misrepresentation there is liability owed to

Correct AnswerverifiedShow Answer

Which of the following is not an element of a successful negligence action against auditors?

Correct AnswerverifiedShow Answer

Under the common law, in a law suit concerning auditor liability, the primary beneficiary is

Correct AnswerverifiedShow Answer

A breach of contract suit is a claim that could be brought by a client against an accountant that accounting services were not performed in the manner agreed upon.

Correct AnswerverifiedShow Answer

A CA may be liable to any purchaser of a security if the CA issued a clean opinion on materially misstated financial statements.CA usually will not be liable to the purchaser

Correct AnswerverifiedShow Answer

Third-party plaintiffs bringing action under common law need not prove

Correct AnswerverifiedD

Accountants can be liable for civil damages and criminal penalties for failure to perform professional services properly.

Correct AnswerverifiedTrue

Negligence is the failure to perform a duty with the requisite standard of care.What are the four elements of negligence and what would be an auditor's defense against them?

Correct AnswerverifiedThere existed a legal duty of care to th...View AnswerShow Answer

Under common law the plaintiff in a tort action against an accountant must prove that the accountant was negligent, grossly negligent, fraudulent, or otherwise responsible for the damages claimed.

Correct AnswerverifiedShow Answer

An important case that limits the auditor's liability to those third parties of which the auditor had knowledge was

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A reasonably foreseeable third party wou...
View Answer

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified
True

Correct Answer
verified
There existed a legal duty of care to th...
View Answer

Correct Answer
verified

Correct Answer
verified