1. If a CPA recklessly departs from the standards of due care when conducting an audit, she or he will be liable to unknown third parties based on a. strict liability
b. gross negligence
d. breach of contract
2. Under the common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client’s financial statements? c. The CPA is liable only to third parties in privity of contract with the CPA. d. The CPA is liable only to known users of the financial statements. e. The CPA probably is liable to any person who suffered a loss as a result of the fraud. f. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion.
3. An example of breach of contract would be
g. 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 h. an auditor’s refusal to return client’s general ledger book until client paid last year’s audit fees i. a CPA firm’s failure to deliver a tax return on the agreed-upon date because the firm had a backlog of other work which was more lucrative j. an auditor’s failure to complete the audit by the agreed-upon date because client’s financial records had been confiscated by the BIR
4. Performing the preliminary engagement activities helps to ensure that the auditor plans an audit engagement, which is not? k. The auditor maintains the necessary independence and ability to perform the engagement. l. There are no issues with management integrity that may affect the auditor’s willingness to continue the engagement. m. The auditor evaluates compliance with ethical requirements as required by PSA 220 (Redrafted) n. There is no misunderstanding with the client as to the terms of the engagement.
5. Which of the following is the...
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