1.

Which of the following best describe whether a CPA has met the required standard of care in
conducting an audit of client financial statement ?

A whether the clients expectation are met with regard to the accuracy of audited financial statement

B whether the statement conform to GAAP

c. whether the CPA conducted the audit with the same skill and care expected of an ordinarily prudent
CPA under the circumstances

d . whether the audit was conducted to investigate and discover all acts of fraud

2. which one of the following is the best defense a CPA firm can assert in defense to a suit for common
law fraud based on its unqualified opinion on materially false financial statement ?

A .lack of privity

b. lack of scienter

c. contributory negligence on the part of the client

d. a disclaimer contained in the engagement letter

3. IF CPA recklessly depart from the standard of due care when conducting an audit , the CPA will be
liable to third party who are unknown to the CPA based on

a. Negligence

b. Gross negligence

c. strict liability

d. criminal deceit

4. IN general the third party (primary) beneficiary rule as applied to CPAs legal liability in conducting an
audit is relevant to which of the following causes of action against a CPA?

Fraud constructive fraud Negligence

A yes yes No

B yes No No

c. No yes yes

d. No No yes
The public accounting profession is very concerned about the effect of litigation on the profession .

The principal cause of the accounting professions liability problems are unwarranted litigation and
coerced settlements

Negligence : an absence of reasonable or due care in the conduct of an engagement

Due care is evaluated in terms of what other professional accountant would have done under
similar circumstances

Gross negligence : an extreme or flagrant deviation fro professional standard of due care

This is also referred to as constructive fraud

Tort : a wrong full act other than breach of contract for which civil action may be taken

Type of liability

Common law – client, third party

Civil liability under federal statues

Criminal liability under federal statutes