AUDITING CHAPTER 4 QUESTIONS
AND PROVEN ANSWERS
In cases of breach of contract, plaintiffs generally have to prove all of the following, except:
ANSW✅✅The CPA made a false statement
If the CPAs provided negligent tax advice to a public company, the client would bring suit under:
ANSW✅✅Common law
Which of the following cases reaffirmed the principles in the Ultra mares case? ANSW✅✅Credit
Alliance Corp. v. Arthur Andersen & Co.
Under common law, the CPAs who were negligent may mitigate some damages to a client by
proving: ANSW✅✅Contributory negligence
Under the Securities and Exchange Act of 1934, auditors and other defendants are faced with:
ANSW✅✅Proportionate liability
A CPA issued an unqualified opinion on the financial statement of a company that sold common
stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the
financial statement, the CPA is being sued by an investor who purchased shares of this public
offering. Which of the following represents a viable defense? ANSW✅✅The false statement is
immaterial in the overall context of the financial statements.
Which of the following elements is most frequently necessary to hold CPA liable to a client?
ANSW✅✅Failed to exercise due care
Which statement best expresses the factors that purchasers of securities registered under the
Securities Act of 1933 need to prove to recover losses from auditors? ANSW✅✅The purchasers of
securities must prove that the financial statements were misleading: then, the burden of proof is
shifted to the auditors to show that the audit was performed with "due diligence"
The most significant result of the Continental Vending case was that it: ANSW✅✅Created more
awareness of the possibility of auditor criminal prosecution.
AND PROVEN ANSWERS
In cases of breach of contract, plaintiffs generally have to prove all of the following, except:
ANSW✅✅The CPA made a false statement
If the CPAs provided negligent tax advice to a public company, the client would bring suit under:
ANSW✅✅Common law
Which of the following cases reaffirmed the principles in the Ultra mares case? ANSW✅✅Credit
Alliance Corp. v. Arthur Andersen & Co.
Under common law, the CPAs who were negligent may mitigate some damages to a client by
proving: ANSW✅✅Contributory negligence
Under the Securities and Exchange Act of 1934, auditors and other defendants are faced with:
ANSW✅✅Proportionate liability
A CPA issued an unqualified opinion on the financial statement of a company that sold common
stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the
financial statement, the CPA is being sued by an investor who purchased shares of this public
offering. Which of the following represents a viable defense? ANSW✅✅The false statement is
immaterial in the overall context of the financial statements.
Which of the following elements is most frequently necessary to hold CPA liable to a client?
ANSW✅✅Failed to exercise due care
Which statement best expresses the factors that purchasers of securities registered under the
Securities Act of 1933 need to prove to recover losses from auditors? ANSW✅✅The purchasers of
securities must prove that the financial statements were misleading: then, the burden of proof is
shifted to the auditors to show that the audit was performed with "due diligence"
The most significant result of the Continental Vending case was that it: ANSW✅✅Created more
awareness of the possibility of auditor criminal prosecution.
