Chapter 27 - Professional Liability and Accountability

Question 1

auditor

Answer 1

• an accountant qualified to perform audits (systematic inspections) of a business’s financial records

Question 2

defalcation

Answer 2

• the misuse of funds

Question 3

due diligence

Answer 3

• a required standard of care that certain professionals, such as accountants, must meet to avoid liability for securities violations

Question 4

fraud

Answer 4

• any misrepresentation, either by misstatement or omission of a material fact, knowingly made with the intention of deceiving another and on which a reasonable person would and does rely to his or her detriment

Question 5

generally accepted accounting principles (GAAP)

Answer 5

• the conventions, rules, and procedures that define accepted accounting practices at a particular time
• the source of the principles is the Financial Accounting Standards Board

Question 6

generally accepted auditing standards (GAAS)

Answer 6

• standards concerning an auditor’s professional qualities and the judgement exercised by him or her in the performance of an examination and report
• the source of the standards is the American Institute of Certified Public Accountants

Question 7

International Finance Reporting Standards (IFRS)

Answer 7

• a set of global accounting standards created by the International Accounting Standards Board (IASB) that are being phased in by companies in the United States
• The Securities and Exchange Commission is working towards a convergence between the IASB and the U.S. accounting standards

Question 8

negligence

Answer 8

• the failure to exercise that standard of care that a reasonable person would exercise in similar circumstances

Question 9

working papers

Answer 9

• the various documents used and developed by an accountant during an audit
• working papers include notes, computations, memoranda, copies, and other papers that make up the work product of an accountant’s services to a client