ACTG 2P40 Study Guide - Undue Influence, Corporate Security

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28 Apr 2013

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The lawyer will give a certificate of independent legal advice. Duress is the actual or threatening of violence against a party to sign the contract: duress. When duress in contract it is voidable at the option of the victim. A term in a contract is a provision that both parties intend and agreed to bind as part of the contract. If a term is breached then the party can sue for breach of contract. A representation to a contract is a statement of fact made by a party during negotiation prior to the time the contract was entered into representations are not part of the contract. A party may sue for breach of representation but not a breach of contract. Breach of representation and breach of term are different remedies. Common law holds that you can sue for representation because the representation was not part of the contract but equity holds misrepresentation and may set aside.

Related Questions

B offered to sell a boat to C for $35,000. Câs response statedâI accept your offer but I will also need the boat moved to my boatslip at the same marina.â Is there a contract? If so what are theterms? Explain.

4. Perfect Poultry Company offers to sell a specified number ofchickens and turkeys to Quick Markets. Without including anyadditional terms in the proposal it is a valid offer to form acontract? Explain.

5. Daveâs uncle tells Dave that if âhe feels thatDave deserves it,â he will give Dave $10,000 when Dave graduatesfrom college. Dave agrees to the deal. Is the uncleâs promiseenforceable if Dave graduates? Explain.

6. Jennifer was about to be struck by a speeding car. Eva pushedher out of the carâs path, just in time to save her from beingstruck. However, Eva was herself struck by the car and wasseriously injured. Several weeks later, Jennifer promised Eva thatshe would pay her $1,000 per month for life. Is Jenniferâs promiseenforceable? Explain.

7. Vincent entered into a contract to sell his laptop to Millie,age 17. Millie took possession of the computer and continued to useit for five months after reaching her 18^th birthday. Howsignificant is her continued use of the computer?

8. Baker, a real estate broker, only licensed in Oregon,concluded a land sale in California. If the California clientrefuses to pay Baker the commission on the sale may he successfullysue the client for breach of contract? Explain.

9. DG Corp. has recently created a genetically modified cow,which they named Elsie. The MJ Dairy Co. contacts DG about buyingElsie. On November 1st, DG and MJ sign a contract stating that DGwill sell Elsie to MJ for $50,000. What neither party knows is thatElsie died during the preceding night. Explain the significance ofthat event.

10. Gene sells a trail bike to Hollis without disclosing thatthe odomeÂter, which reads 10,000 miles, was disconnected 90,000miles ago. Does Hollis have to pay the contract price? Discuss.

11. Mona is induced by her guardian Newt to sign acontract to invest her student loan funds in Overseas Bank throughNewtâs investment firm. Unknown to Mona, Newt realizes ongoingcommissions from the investment. On what basis could Mona rescindthe contract? Discuss.

12. Carl leases 2 acres of land to his friend, Larry. Larryintends to build a house on the property which will significantlyincrease its value. Larry applies for a $1 million loan from FleetBank to build the house. Carl orally promises the bank that he willbe responsible for paying back the loan if Larry does not. On thatbasis the loan is approved.

Is Carlâs promise enforceable if Larry fails to pay back theloan? Explain.

13. Guardian Security, Inc., and Hedge Fund Corporation enterinto an oral contract under which Guardian Security agrees toprovide security services for Hedge Fund offices for as long asHedge Fund needs them. This contract is/is not enforceÂ¬able?

14. The Caplans contract with Fain Construction tobuild a house on their lot for $300.000. The written contractspecifies that Fain is to satisfactorily install Crane brandbathroom fixtures. Fain completes construction but the Caplansrefuse to pay the full contract price because they are notsatisfied with the bathroom fixtures installations. Discuss whetherFain is or is not entitled to the full contract price.

15. Polly agrees to buy Quinnâs Cycle World but only ifRidgeline Credit Union approves the financing. This approval isa:

a. Condition precedent.

b. Condition subsequent.

c. An illusory promise.

16. Edâs Electric substantially performs its contract withForest Hills Apartments, Inc., to deliver and install an alarmsystem and parking lot lighting. Edâs is entitled to

a. Nothing due to the breach of contract.

b. Payment to the extent that it performed the contract.

c. Full payment of the contract price since it did substantiallyperform.

17. Gliding Light, LLC, and Hang Gliders, Inc., are parties to acontract. They subseÂquently agree that High Riders Inc. shouldtake Gliding Lightâs place and assume all of its rights and dutiesunder the contract. This is:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

d. A settlement agreement.

18. Omar and Penn want to discharge their contract by executinga new agreement with performance by Penn to be different from whatwas originally promised. This can best be accomplished by:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

19. Nina contracts with Office Suites Corporation to buy a suitein its Prospect Point Tower at a premium because of its undisturbedview of Quay Harbor. Unforeseeably, the town of Quay Harbor changesthe zoning law, and Resort Hotels, Inc., constructs Seaview Resort,blocking what would have been Ninaâs view. Ninaâs best argument fora change in the Office Suites contract or its price is:

a. Frustration of purpose.

b. Objective impossibility of performance.

c. Anticipatory repudiation.

d. Commercial impracticability.

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Case 14-6 Making Connections Social Konnections Inc. (SKI or the âCompanyâ) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2010. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games. Last year, substantially all of SKIâs revenue came from advertisers who market their products and services to SKIâs active users through advertisements placed on the Web site or its various mobile platforms. The Companyâs remaining immaterial revenue was received from fees associated with the sale of virtual goods and services by third-party application developers using SKIâs various platforms. In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CCâs customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CCâs revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKIâs consolidated revenue. SKIâs investors are focused on the growth prospects of the Companyâs legacy open social media platform operations and its new corporate revenue unit. The Companyâs MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CCâs operations. Audit Because of SKIâs continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies. A new firm was selected and has performed each of the interim reviews in the current year. Kristine Drew, a senior auditor, is the in-charge accountant on the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue. Ms. Drew has read the Companyâs disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in- depth process flow documentation that will serve as the basis for the teamâs risk assessment. SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly or through advertising agencies. According to Mr. Cook, the amount an advertiser pays is dependent on the number of views the ad receives or on the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made. Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKIâs advertising Web site at standard rates, with the advertisements and terms input directly into the Companyâs ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets. Once a contract is signed, the ad development department creates the ad content and obtains the customerâs approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Companyâs ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy. The Companyâs ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity. As part of its new corporate services program from the acquisition of CC, the Company earns revenues by providing corporate social network development and hosting services. For new customers, a contract will typically require an up-front fee to SKI for the development of the customerâs specific social media network; the contract will also include a separate multiyear hosting agreement. The customized social media networks only operate on the Companyâs hosting platform, and customers do not have the option to take possession of the software used to run the networks. Revenues for the up-front fee associated with the development are recognized as the development is completed and the system is available to the customer. Hosting revenues are automatically recognized by the system based on the invoicing cycle outlined within the customerâs contract. According to Mr. Cook, this invoicing cycle is fairly uniform throughout the hosting period; therefore, from a materiality perspective, the Company will disclose that hosting fees are recognized ratably throughout the hosting contract period. , Ms. Drew was told that the corporate sales director had established a goal of increasing the length of the average hosting contract. Before SKI acquired CC, most of the multiyear hosting agreements were for three-year terms. In Q4, the corporate sales director implemented a strategy shift that would increase the contracted hosting period to five years. To accomplish this goal, the sales team was able to offer its customers three months of free service, to be added at the end of any new five-year agreement signed. In addition, the sales director offered an additional commission for converting existing contracts to five-year agreements. To accelerate the implementation of this plan, the sales commission is doubled if the contract modification occurs before the end of the fiscal year. Ms. Drewâs Concern Ms. Drew is concerned about several things she has learned regarding the appropriateness of managementâs revenue recognition policies. Question: 1) Identify the potential revenue recognition issues related to each of the Companyâs sources of revenue. 2)On the basis of the information Ms. Drew has learned, what fraud risk factors should she consider discussing with her team at the next fraud brainstorming meeting? 3)What potential audit procedures could the team consider to evaluate managementâs revenue recognition policies and determine whether those policies are appropriately applied?

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

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ACTG 2P40 Study Guide - Undue Influence, Corporate Security

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