True / False Questions 1.
Auditors are potentially liable for monetary damages and subject to criminal penalties for failure to perform professional services properly. True False 2.
Auditors cannot be held liable to their clients for failure to detect material management fraud. True False 3.
Joint and several liability is a doctrine that allows a successful plaintiff to recover the full amount of a damage award from any defendant regardless of the defendant's level of culpability. True False 4.
Strict privity is the relationship of parties who enter into a contract together. True False 5.
The restatement of torts extends liability for ordinary negligence to "foreseen" third parties who may not be explicitly known to auditors. True False 6.
The Private Securities Litigation Reform Act deals with lawsuits in both federal and state courts. True False 7.
Legal liabilities of auditors may arise from lawsuits brought on the basis of the law of contracts or as tort actions. True False 8.
Tort actions cover civil complaints other than breach of contract (such as failure to exercise the appropriate level of professional care). True False 9.
Actions brought under common law place most of the burden of proof on the defendant, usually auditors. True False 10.
Auditors' primary defense against a claim for ordinary negligence is to offer evidence that the audit had been conducted in accordance with generally accepted auditing standards. True False 11.
The Ultramares case holds auditors to a higher level of responsibility than the Rosenblum v. Adler case in terms of common law liability to third parties. True False 12.
Gross negligence represents a more significant departure from appropriate professional care than ordinary negligence. True False 13.
The Securities Act of 1933 regulates