An auditor’s claim that the client staff is unqualified. A CPA firm’s failure to complete an audit on the agreed-upon date because the firm had a backlog of other work which was more lucrative. A bank’s claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan. An auditor’s refusal to return the client’s general ledger book until the client paid last year’s audit fees. Ordinary negligence 8) An example of a breach of contract would likely include: A. 7) “absence of reasonable care that can be expected of a person in a set of circumstances” defines: A. Specialists employed by the CPA firm to provide technical advice on the audit. Other CPA firms engaged to do part of the audit work D. Vigilant person conceptĥ) Auditors may be liable to their clients for:Ħ) Under the laws of agency, partners of a CPA firm may be liable for the work of others on whom they rely. Fraud 4) The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the: A. This description is the legal term for: A. Criminal charges 3) Recklessness in the case of an audit is present if the auditor knew an adequate audit was not done but still issued an opinion, even though there was no intent to deceive financial statement users.
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Must exercise due professional care in the performance of their audit responsibilities 2) Auditors who fail to exercise due care in their performance of professional services may be liable for: A. Must strictly follow PCAOB auditing standards for publicly held clients D. Must strictly follow GAAS for privately held clients C. Is legally liable for not detecting client fraud B. False LO 5-3 1) In the performance of an audit, a CPA: A. False 4) 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. 3) Audit risk is the risk there will be an audit failure for a given audit engagement.
Audit failure occurs when the auditor issues an incorrect audit opinion because it failed to comply with the requirements of auditing standards. Answer: Business failure occurs when a business is unable to repay its lenders or meet expectations of its investors because of economic or business conditions, such as recession, poor management decisions, or unexpected competition in the industry. Process 2) Distinguish between what is meant by business failure and audit failure. LO 5-2 1) A (n) _ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards. Chapter 5 Legal Liability LO 5-1 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.
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