Deck 4: Professional Liabilit

Question 1

The concept of auditor's liability is based entirely on contract law.

Answer 1

False

Question 2

The concept of due care is defined by Cooley on Torts.

Answer 2

True

Question 3

The Trade Practices Act is the primary statute affecting auditor liability.

Answer 3

False

Question 4

The Pacific Acceptance Case was a significant case in terms of duty of care to clients.

Question 5

The AWA Case overturned the Pacific Acceptance Case permitting contributory negligence where management failings could be proven.

Question 6

The professional accounting bodies require that its members in public practice complete 120 hours of continuing education each year to retain membership.

Question 7

Engagement letters are the cornerstone of a defensive practice program by auditors.

Question 8

The Corporations Act requires that the partner in charge of the audit of a listed company be rotated at least every five years.

Question 9

Contingent-fee based legal cases are permitted in Australia.

Question 10

Failure to perform a contractual duty is known as a breach of contract.

Question 11

The Corporations Act was enacted to ensure that investors in public companies are provided full and adequate disclosure of relevant information.

Question 12

Registered company auditors found to be unqualified, unethical or in violation of any provision
of the Corporations Act are only disciplined by the accounting bodies.

Question 13

Audited financial statements are not required to be included in information provided to current and prospective investors for large public companies.

Question 14

Generally, less foreseeable plaintiffs have a lesser burden in proving a higher standard of negligence.

Question 15

A partner not otherwise involved in the audit performs an engagement quality control review near the end of each audit to make sure that documented evidence supports the audit opinion.

Question 16

In 2010, under a voluntary program, Standard Business Reporting (SBR) for the filing of financial statements with ASIC was introduced.

Question 17

Which aspect of statutory law places the burden of proof onto the auditor?

A) ASIC Act
B) Corporations Act
C) Trade Practices Act
D) Taxation Act

Question 18

The case that led to auditors being able to argue that damages may be at least in part caused by management's carelessness was:

A) Caparo case
B) AWA case
C) Pacific Acceptance case
D) London case

Question 19

The law that requires companies to file registration statements with ASIC before they may issue new securities to the public is known as the:

A) Trade Practices Act
B) ASIC Act
C) Corporations Act
D) Taxation Act

Question 20

The Corporations Act regulates which of the following?

A) the initial registration of all corporations with the federal government
B) the initial registration of all corporations with state governments
C) corporations to file registration statements when reselling prior issues to the public
D) corporations to file registration statements when issuing new securities to the public

Question 21

The Corporations Act places the burden of proof on which of the following parties?

A) third-party plaintiff
B) lawyer defendant
C) auditor defendant
D) client plaintiff

Question 22

The Pacific Acceptance Case highlighted that the auditor's duty includes all of the following except:

A) report and audit, using due care and skill
B) promptly report fraud and warn of suspected fraud
C) supervise and review the work of inexperienced staff
D) audit just end-of-year balances

Question 23

The case that extended potential liability to non-contractual parties where it was foreseeable that the injured party might reasonably rely on their judgement or skill of an expert was:

A) the Hedley Byrne Case
B) the Caparo Case
C) the Candler Crane Case
D) the Ultramares Case

Question 24

The Australian case that re-embraced the warning sounded by Cardozo J in the Ultramares Case was:

A) The Esanda Case
B) The Columbia Coffee Case
C) The Lowe Lippman Case
D) The Scott Group Case

Question 25

Breach of contract may occur where there is non-performance of a contractual duty, including:

A) violating client confidentiality
B) providing the audit report on time
C) discovering a material misstatement
D) maintaining client confidentiality

Question 26

The court case that established the precedent that an auditor can be held liable to third parties for fraud and gross negligence, but limited auditor liability for ordinary negligence to those who are in privity of contract, is the:

A) Caparo Case
B) Esanda Case
C) Lippmann Case
D) Ultramares Case

Question 27

The Corporations Act is a form of which type of law?

A) statutory law
B) common law
C) contract law
D) civil law

Question 28

Which of the following laws would not be beneficial to public accountants in an auditing practice?

A) limited liability partnerships
B) limited liability corporations
C) proportionate liability
D) contract law

Question 29

The Corporations Act places the burden of proof on which of the following?

A) third-party plaintiff
B) attorney defendant
C) auditor defendant
D) client plaintiff

Question 30

Which court case extended potential legal liability to non-contractual parties where it was foreseeable that the injured party might reasonably rely on the judgement or skill of an expert?

A) Caparo Case
B) Scott Group Case
C) Hedley Byrne Case
D) Ultramares Case

Question 31

The failure to use due care and skill in the conduct of the audit is called

A) diligence
B) negligence
C) fraud
D) scienter

Question 32

Which of the following cases added the requirement that it be fair and reasonable that a duty of care exists?

A) Ultramares Case
B) Scott Group Case
C) Caparo Case
D) Lippmann Case

Question 33

Which of the following defences can an auditor use against a breach of contract suit?

A) The client did not contribute to the negligence.
B) The client's losses were not caused by the breach.
C) The auditor carried out the audit in accordance with the auditing standards.
D) The auditor did not exercise due professional care in accordance with the contract.

Question 34

The auditor is required to conduct the audit in accordance with the auditing standards. Failure to do so could be construed as:

A) scienter
B) negligence
C) breach of contract
D) fraud

Question 35

Under which law/act is the auditor required to prove due diligence?

A) Trade Practices Act
B) Corporations Act
C) Common law
D) Torts

Question 36

The notion that the auditor is an indemnifier of losses has come to be known as:

A) the insurance policy
B) the insurance hypothesis
C) the indemnifier hypothesis
D) the legal liability doctrine

Question 37

Defensive auditing
A. What is meant by the term 'defensive auditing'?
B. Present examples of defensive auditing practices.

Question 38

Auditor liabilities in the public arena
Discuss the four important dimensions of liability that auditors must consider.