ACC 406 COMPREHENSIVE EXAM STUDY
GUIDE WITH COMPLETE SOLUTIONS
●● Investors who have sustained large losses can ______ the CPA is at
fault.
Answer: initiate a lawsuit against a CPA whether or not they believe
●● When a governmental unit passes laws and regulations that impose
potential liability upon CPAs, ______ liability is developed.
Answer: statuary liability
●● A client may sue their accounting firm for ______ if it does not
perform the engagement in accordance with the engagement letter.
Answer: breach of contract
●● True or false: Breach of contract occurs when the auditors fail to
exercise a duty of care that an ordinary prudent person would exercise
under similar circumstances.
Answer: false
●● Negligence occurs when the CPA ______.
Answer: fails to exercise due professional care
, ●● -Substantial failure on the part of an auditor to comply with GAAS
may be interpreted as ______.
-Reckless disregard for one's professional responsibilities is considered
Answer: gross negligence
●● An accounting firm can be sued for fraud if the firm ______.
Answer: -caused the client financial loss
-knowingly misrepresented facts
●● To establish CPA liability, the injured party must prove ______.
Answer: -losses
-duty
●● The auditors' duty is defined by both generally accepted auditing
standards and _____
Answer: -the engagement letter
-legal considerations
●● -A CPA firm knowingly misrepresents their client's financial
statements to cause financial loss so that the partners can buyout the
company. The CPAs would most likely be sued for
-misrepresentation by a CPA of a material fact with intent of deceit
Answer: fraud
GUIDE WITH COMPLETE SOLUTIONS
●● Investors who have sustained large losses can ______ the CPA is at
fault.
Answer: initiate a lawsuit against a CPA whether or not they believe
●● When a governmental unit passes laws and regulations that impose
potential liability upon CPAs, ______ liability is developed.
Answer: statuary liability
●● A client may sue their accounting firm for ______ if it does not
perform the engagement in accordance with the engagement letter.
Answer: breach of contract
●● True or false: Breach of contract occurs when the auditors fail to
exercise a duty of care that an ordinary prudent person would exercise
under similar circumstances.
Answer: false
●● Negligence occurs when the CPA ______.
Answer: fails to exercise due professional care
, ●● -Substantial failure on the part of an auditor to comply with GAAS
may be interpreted as ______.
-Reckless disregard for one's professional responsibilities is considered
Answer: gross negligence
●● An accounting firm can be sued for fraud if the firm ______.
Answer: -caused the client financial loss
-knowingly misrepresented facts
●● To establish CPA liability, the injured party must prove ______.
Answer: -losses
-duty
●● The auditors' duty is defined by both generally accepted auditing
standards and _____
Answer: -the engagement letter
-legal considerations
●● -A CPA firm knowingly misrepresents their client's financial
statements to cause financial loss so that the partners can buyout the
company. The CPAs would most likely be sued for
-misrepresentation by a CPA of a material fact with intent of deceit
Answer: fraud
