Question 1

auditor

Accepted Answer

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

Question 2

defalcation

Accepted Answer

- the misuse of funds

Question 3

due diligence

Accepted Answer

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

Question 4

fraud

Accepted Answer

- 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)

Accepted Answer

- 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)

Accepted Answer

- 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)

Accepted Answer

- 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 - having uniform accounting rules that apply to all nations makes sense in a global economy

Question 8

negligence

Accepted Answer

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

Question 9

working papers

Accepted Answer

- 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

Question 10

SAMPLE TEST QUESTIONS 1. Rochelle, an accountant, enters into a contract to provide services to Sky Transport, Inc. Rochelle does not finish the work within the contract's deadline. Sky Transport pays a penalty for the missed deadline and hires Turbo to complete the job. Rochelle is most likely liable for : a. nothing b. Sky Transport's penalty and the cost to hire Turbo c. Sky Transport's penalty only d. the cost to hire Turbo only

Accepted Answer

ANSWER : (B) CORRECT : (B) Sky Transport's penalty and the cost to hire Turbo

Question 11

SAMPLE TEST QUESTIONS 2. Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely : a. liable if the audit would have revealed the misconduct b. liable if Ricardo issues a specifically qualified opinion c. not liable if Ricardo generally disclaims any liability d. not liable if the misconduct was due to Sensei Sushi's negligence

Accepted Answer

ANSWER : (B) CORRECT : (A) liable if the audit would have revealed misconduct

Question 12

SAMPLE TEST QUESTIONS 3. Nguyen Imports, Inc., accuses Ogilvie, an accountant, of committing defalcation.This is : a. embezzlement b. general misconduct c. professional negligence d. misrepresentation of professional expertise

Accepted Answer

ANSWER : (A) CORRECT : (A) embezzlement

Question 13

SAMPLE TEST QUESTIONS 4. Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards : a. does not indicate that Norman was negligent b. is prima facie evidence that Norman was negligent c. precludes Norman from raising any defense against a negligence claim d. is embarrassing but will never subject Norman to liability

Accepted Answer

ANSWER : (B) CORRECT : (B) is prima facie evidence that Norman was negligent

Question 14

SAMPLE TEST QUESTIONS 5. Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc., a client. Delaney may successfully defend against the claim if he can show that : a. scienter was lacking b. he complied with all International Financial Reporting Standards c. the negligence was not the proximate cause of the client's losses d. the negligence was only contributory

Accepted Answer

ANSWER : (C) CORRECT : (C) the negligence was not the proximate cause of the client's losses

Question 15

SAMPLE TEST QUESTIONS 6. Edward, an attorney, allows a statute of limitations to lapse on a claim by Fabrication Company, a client. Edward : a. can be held liable for malpractice b. has violated an ethical standard but cannot be held liable c. is subject to criminal penalties under the statute of limitations d. will be automatically disbarred

Accepted Answer

ANSWER : (B) CORRECT : (A) can be held for malpractice

Question 16

SAMPLE TEST QUESTIONS 7. Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing, Inc., a client. Fruit Packing justifiably relies in the misstatement to its detriment. Ezra is most likely liable for : a. actual fraud b. constructive fraud c. destructive fraud d. virtual fraud

Accepted Answer

ANSWER : (A) CORRECT : (A) actual fraud

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Chapter 27 - Professional Liability and Accountability Flashcards

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