ACCT 3280 Lecture : Chapter 5 - Legal Liability.docx

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1 May 2012

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Law is a social system for solving conflicts. Private or civil law conflicts between individuals (corporations) settled in court. Public law disputes between an individual and the states, those in between states or different levels of government. Public law includes criminal law, administrative law, and constitutional law. Public law codified by statute, passed to some level of government. Common law system of law based on previous judicial decisions. Public law laws have not been codified in statues through legislation. Major categories of civil law: contracts (agreements or promises that create expectations for others), torts (civil wrongs that create obligations got the offending party), and property (rights over goods and land) Common law liabilities for auditors arise in contracts and torts. Statutory liabilities for auditors arise from administrative law related to economic relations and criminal charges. Sox is an example of statutory law.

Related Questions

1. Which of thesestatements is true?

The federal government's authority for levying an individualincome tax emanates from the 16th Amendment to theConstitution.

Primary sources of tax information include pronouncements fromall three branches of the government.

The Internal Revenue Code, first codified (i.e., arrangedindividual revenue acts into a logical sequence and thenincorporated them into the Federal statutes) in 1939, was mostrecently recodified in 1986.

While statutory sources of the law typically originate in theHouse of Representativesâ House Ways and Means Committee, they mayalso originate in the Senate as riders to other legislativeproposals.

e. All of them.

f. All butone of them (specify all true responses).

g. More than one,but not all but one, of them (specify all true responses).

h. None ofthem.

2. Which of thesestatements is true?

a. When the Houseand Senate versions of a tax bill differ, the Joint ConferenceCommittee works out a compromise tax bill that satisfies both theHouse and the Senate.

b. The Committee Reports accompanying proposed legislation arevaluable sources for ascertaining the intent of Congress.

c. A tax bill has a greater likelihood of being changed in the Housethan it does in the Senate because each representative hasconsiderable latitude to make amendments to the bill.

The President must sign a tax bill before it can become law.

e. All of them.

f. All butone of them (specify all true responses).

g. More than one,but not all but one, of them (specify all true responses).

h. None ofthem.

I need a reason for whick choice thatis false.

1. Fred, employee of ABC Company, notices the company has poorinternal controls and lack of segregation of duties. He realizes hecould take some cash and record it against miscellaneous expensewithout anyone catching it if he wanted. Which part of the fraudtriangle does Fred's thought relate to?

A. Opportunity

B. Rationalization

C. Pressure

D. None of the Above

2. Auditors must provide _______ assurance that the financialstatements are presented ________ in all material respects.

A. Reasonable; Fairly

B. Fairly; Reasonable

C. Complete; Justly

D. Justly; Complete

3. ____are items that management has full control over and isable to delay or eliminate.

A. Nondiscretionary accruals

B. Discretionary accruals

C. Defining Materiality

D. Revenue Recognition

4. ___Requires the auditor to perform professional services withdue care.

A. Legal Liability

B. Stat utory Law Liability

C. Common-Law Liability

D. Liability to Clients

5. Which is one of the UKs six principles on what constitutesadequate procedures?

A. Risk Assessment

B. Due diligence

C. Monitoring and Reporting

D. All of the Above

E. None of the above

6. The Fraud Triangle consists of:

Rationalization
Incentives & Pressures
Opportunities

D. All of the Above

7. A standard auditorâs report must include which of thefollowing:

What was audited
Management & auditorâs responsibilities
Scope of the audit
The auditorâs opinion
All of the Above

8. What does privity relationship mean?

A partyâs financial liability is limited
A party can sue if fraud has taken place
A party has a contractual obligation
A party may be a user of the financial statements

9. When an auditor acts careless in the application ofprofessional standards that it implies a reckless disregard for thestandards of due care is referred to as?

A. Negligence
B. Due Care
C. Fraud
D. Constructive Fraud

10. What is the legal term for the intent to deceive, manipulateor defraud?

A. Constructive Fraud
B. Due Care
C. Misfeasance
D. Scienter

11. From an accounting perspective, _____ implies a tendency todefer the recognition of assets and items that increase net incomewhile reserving for possible future declines in earnings:

A. High secrecy
B. High professionalism
C. High conservatism
D. High flexibility

12. According to CIMA code of ethics, âWhen you become sosympathetic to the interests of others as a result of a closerelationship that your professional judgment becomes compromisedâ,is considered:

A. Self-interest threat
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat

13. To be appropriate audit evidence must be both:

A. Relevant and reliable
B. Significant and documented
C. Material and quantitative
D. Objective and reasonable

14. Common law liability does not include:

A. Breach of contract
B. Legislation passed a state or federal level
C. Tort actions
D. Legal opinions issued by judges

15. All of the following EXCEPT_______ is part of "The FraudTriangle"

A. Incentives/Pressures
B. Opportunity
C. Rationalization
D. All of the Above

16. A law suit against an accountant for failing to live up tothe terms of a contract is what type of legal liability?

Common-Law liability
Foreseeable Legal liability
Liability to Third Party
Liability to Clients

17. Audit Risk consist of 3 components:

Inherent, detection, material misstatement
Professional judgment, material misstatement, materialityjudgments
Inherent, detection, control

All the above

18. CIMAâs code identifies five common threats:

A. Integrity, Self-review, Objectivity, Intimidation,professional behavior

B. Integrity, self-review, self- interest, Intimidation,professional behavior

C. Self-review, self-interest, Intimidation, Familiarity,Advocacy

D. Integrity, Intimidation, Familiarity, self-interest,Advocacy

crimsonmammoth754

Fill in the blank with the answer. Each answer in thelist may be used more than once or not at all.

a.Separate and proportionate

b.Racketeer Influenced and Corrupt Organization Act (RICO)

c.Foreign Corrupt Practices Act

d.Fraud

e.Negligence

f.Reasonable professional care

g.Gross negligence

h.Securities Act of 1933

i.Compensatory damages

j.Damages

k.Criminal victim compensation

l.Punitive damages

m.Hochfelder

n.Ultramares

o.Privity

p.Near privity

q.Standing

r.Deposition

s.Constructive fraud

t.Breach of contract

u.Joint and severally

v.Securities Exchange Act of 1934

_____1.A federal statute used for legal action related to theinitial offering of securities to the public by a company.

_____2.Absence of the level of care that an auditor owes toanother party that has privity with the auditor.

_____3.Prior to SOX, the first federal statute requiringcompanies to have a functioning internal control system.

_____4.The federal statute that does not require the plaintiffto prove that he or she relied on the financial statements to beable to obtain a judgment against the auditor.

_____5.A case that established that fraud on the part of theauditor is required for an injured party to collect damages under10b-5 of the 1934 Act.

_____6.Cause of action which plaintiffs without privity have notbeen successful at using to obtain the remedy of specificperformance.

_____7.A judgment for the return of the loss the plaintiffexperienced.

_____8.Liability theory that is now used for federal civil casesagainst accountants and auditors based on the Private SecuritiesLitigation Reform Act of 1995.

_____9.When a state law does not specify the concept of grossnegligence, this is the legal concept that is likely used.

_____10.The motivation for a plaintiff to allege grossnegligence.

_____11.Can result in treble damages.

_____12.Typically requires the auditor to commit fraud beforethere will be a finding and judgment against the auditor.

_____13.Often a part of the process of discovery.

_____14.Requires that the offending partyâs behavior must havebeen intentional (scienter).

ACCT 3280 Lecture : Chapter 5 - Legal Liability.docx

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