Principles of Auditing and Other Assurance
Services Solution Manual | Step-by-Step
Answers & Explanations
• Under the Ultramares rule, to which of the following parties will an
accountant be liable for ordinary negligence?
Parties in Privity Forseen Parties
A. Yes Yes
B. Yes No
C. No Yes
D. No No. Answer: B. Yes No
• Which of the following stmts best describes why the profession of
CPA has deemed it essential to promulgate a code of profl conduct and
to est a mechanism for enforcing observation of the code?
A. A distinguishing mark of a profession is its acceptance of
responsibility to the public.
B. A prerequisite to success is the establishment of an ethical code that
stresses primarily the professional's responsibility to clients and
colleagues.
C. A requirement of most state laws calls for the profession to establish
a code of ethics.
, D. An essential means of self-protection for the profession is the
establishment of flexible ethical standards by the professions.. Answer:
A. A distinguishing mark of a profession is its acceptance of
responsibility to the public.
• Under common law, which of the following stmts most accurately
reflects the liability of a CPA who fraudulently gives an opinion on an
audit of a client's financial stmts?
A. The CPA is liable only to third parties in privity of contract with the
CPA.
B. The CPA is liable only to known users of the financial statements.
C. The CPA probably is liable to any person who suffered a loss as a
result of the fraud.
D. The CPA probably is liable to the client even if the client was aware
of the fraud and did not rely on the opinion.. Answer: C. The CPA
probably is liable to any person who suffered a loss as a result of the
fraud.
• Which of the following is not a broad category of safeguards that
mitigate or eliminate threats to independence?
A. Safeguards created by the profession, legislation, or regulation.
B. Safeguards created to assure proper training within both the client and
attest environment.
C. Safeguards implemented by the attest client.
Services Solution Manual | Step-by-Step
Answers & Explanations
• Under the Ultramares rule, to which of the following parties will an
accountant be liable for ordinary negligence?
Parties in Privity Forseen Parties
A. Yes Yes
B. Yes No
C. No Yes
D. No No. Answer: B. Yes No
• Which of the following stmts best describes why the profession of
CPA has deemed it essential to promulgate a code of profl conduct and
to est a mechanism for enforcing observation of the code?
A. A distinguishing mark of a profession is its acceptance of
responsibility to the public.
B. A prerequisite to success is the establishment of an ethical code that
stresses primarily the professional's responsibility to clients and
colleagues.
C. A requirement of most state laws calls for the profession to establish
a code of ethics.
, D. An essential means of self-protection for the profession is the
establishment of flexible ethical standards by the professions.. Answer:
A. A distinguishing mark of a profession is its acceptance of
responsibility to the public.
• Under common law, which of the following stmts most accurately
reflects the liability of a CPA who fraudulently gives an opinion on an
audit of a client's financial stmts?
A. The CPA is liable only to third parties in privity of contract with the
CPA.
B. The CPA is liable only to known users of the financial statements.
C. The CPA probably is liable to any person who suffered a loss as a
result of the fraud.
D. The CPA probably is liable to the client even if the client was aware
of the fraud and did not rely on the opinion.. Answer: C. The CPA
probably is liable to any person who suffered a loss as a result of the
fraud.
• Which of the following is not a broad category of safeguards that
mitigate or eliminate threats to independence?
A. Safeguards created by the profession, legislation, or regulation.
B. Safeguards created to assure proper training within both the client and
attest environment.
C. Safeguards implemented by the attest client.
