Question 1

Distinguish between gross negligence and fraud.

Accepted Answer

The answer of Distinguish between gross negligence and fraud....

Question 2

Discuss each of the four defenses an auditor can normally use when facing legal claims by clients. Which of these defenses is ordinarily not available against third- party suits?

Accepted Answer

The answer of Discuss each of the four defenses an...

Question 3

Discuss some of the steps that professional associations and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.

Accepted Answer

The answer of Discuss some of the steps that professional...

Question 4

Explain what each of the following terms means: (1) Business failure; (2) Audit failure; (3) Audit risk.

Accepted Answer

The answer of Explain what each of the following terms...

Question 5

Match each of the definition with the following terms
-Laws that have been passed by a country's parliament and other governmental units.

Accepted Answer

Statutory law refers to laws that have been formally enacted by legislative bodies, such as a country's parliament or other governmental units, distinguishing it from common law, which evolves from judicial decisions and precedents.

Question 6

Match each of the definition with the following terms
-A situation in which the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards.

Accepted Answer

Audit failure refers to the situation where an auditor issues an incorrect opinion on financial statements due to a failure to follow generally accepted auditing standards.

Question 7

Match each of the definition with the following terms
-An auditor's legal defense under which the auditor claims that the client failed to perform certain obligations and that it is the client's failure to perform those obligations that brought about the claimed damages.

Accepted Answer

Contributory negligence is a defense where the auditor argues that the client's own lack of care or failure to perform certain obligations contributed to the damages they suffered.

Question 8

Match each of the definition with the following terms
-An auditor's legal defense under which the auditor claims that the audit was performed in accordance with auditing standards .

Accepted Answer

Non-negligent performance refers to the auditor's defense that they conducted the audit in line with the appropriate auditing standards, thereby not being negligent in their duties.

Question 9

Match each of the definition with the following terms
-An auditor's legal defense under which the auditor contends that the damages claimed by the client were not brought about by any act of the auditor.

Accepted Answer

The definition provided matches the concept of "Absence of causal connection," where the auditor argues that the client's damages were not caused by the auditor's actions.

Question 10

Several Arab countries have statutes that permit privileged communication between the client and auditor, that in theory allow an auditor to refuse to testify in a court of law.

Accepted Answer

In several Arab countries, laws exist that recognize the concept of privileged communication between a client and their auditor, similar to attorney-client privilege. This legal framework can, under certain circumstances, allow an auditor to refuse to testify about confidential information disclosed during the audit process in a court of law.

Question 11

Securities laws in several Arab countries include specific requirements that in cases of fraudulent financial reporting affecting investors' investments the auditor should be imprisoned.

Accepted Answer

Securities laws in several Arab countries include specific requirements that in cases of fraudulent financial reporting affecting investors' investments the auditor should be imprisoned.

Question 12

A challenge associated with the fundamental ethical principles stated in the Code of Ethics for Professional Accountants is:

Accepted Answer

It is impossible to define every situation that creates threats to compliance, making it a challenge to ensure adherence to the Code of Ethics for Professional Accountants in all possible scenarios.

Question 13

Maintaining financial statements users' perception of independence is referred to as independence in:

Accepted Answer

Independence in appearance refers to the perception of independence by users of financial statements. It's about maintaining the trust and credibility of the financial statements by ensuring that auditors appear unbiased and impartial to external parties.

Question 14

Which of the following statements is True? An audit firm will breach Section 290 of the Code of Ethics on financial interest if:

Accepted Answer

Explanation: According to Section 290 of the Code of Ethics, audit team members are prohibited from having any direct financial interest in an audit client, regardless of the amount. This ensures independence and objectivity in the audit process. Choices A, B, and C do not necessarily breach the code under specific circumstances, but a staff auditor directly involved in the audit acquiring stock in the client clearly violates the independence requirements.

Question 15

Section 290 of the Code of Ethics prohibits specific members of an audit firm from owning any stock or having indirect material interest in audit clients. This includes all but which of the following?

Accepted Answer

Section 290 of the Code of Ethics specifically restricts members of the audit team, their immediate family, and partners in the office who might influence the audit engagement from owning stock or having a material interest in audit clients. However, it does not extend this prohibition to staff members in the office who are not involved in the engagement, as their involvement is considered too indirect to influence the audit outcome.

Question 16

The financial interests of which of the following parties would not be included as a 'direct financial interest' of the CPA?

Accepted Answer

Direct financial interests typically involve ownership or other financial interests where the individual has a direct stake in the financial performance of the entity being audited. A CPA's spouse and dependent children are considered to have direct financial interests due to their close financial relationship with the CPA. A relative supported by the auditor could also be seen as having a direct financial interest because of their financial dependency on the auditor. However, siblings, unless financially dependent on the CPA, do not automatically have their financial interests considered as direct financial interests of the CPA.

Question 17

Rules regarding financial allow an auditor to serve as:

Accepted Answer

Auditors are generally prohibited from serving in roles that could impair their independence, such as being a director, officer, trustee of a client's pension fund, or an underwriter for a client's securities. However, serving as an honorary director for a not-for-profit charitable or religious organization is typically allowed, provided it does not involve any management responsibilities or financial oversight that could create a conflict of interest or impair independence.

Question 18

When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same private company client, the Code of Ethics:

Accepted Answer

The Code of Ethics permits a CPA firm to provide both bookkeeping and auditing services for the same private company client, provided that certain requirements are met to ensure independence and objectivity are maintained.

Question 19

Which of the following activities is allowed for a audit firm's public interest audit clients?

Accepted Answer

Recruiting services are not related to the audit function and do not pose a conflict of interest.

Question 20

The IESBA Code of Ethics (Section 290) requires that an individual shall not be a key audit partner in respect of a public interest entity for more than?

Accepted Answer

The answer of The IESBA Code of Ethics (Section 290)...

Quiz 2: Professional Ethics, Legal Liability, Audit Responsibilities and Objectives

Distinguish between gross negligence and fraud.

Discuss each of the four defenses an auditor can normally use when facing legal claims by clients. Which of these defenses is ordinarily not available against third- party suits?

Discuss some of the steps that professional associations and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.

Explain what each of the following terms means: (1) Business failure; (2) Audit failure; (3) Audit risk.

Match each of the definition with the following terms -Laws that have been passed by a country's parliament and other governmental units.

Match each of the definition with the following terms -A situation in which the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards.

Match each of the definition with the following terms -An auditor's legal defense under which the auditor claims that the client failed to perform certain obligations and that it is the client's failure to perform those obligations that brought about the claimed damages.

Match each of the definition with the following terms -An auditor's legal defense under which the auditor claims that the audit was performed in accordance with auditing standards .

Match each of the definition with the following terms -An auditor's legal defense under which the auditor contends that the damages claimed by the client were not brought about by any act of the auditor.

Several Arab countries have statutes that permit privileged communication between the client and auditor, that in theory allow an auditor to refuse to testify in a court of law.

Securities laws in several Arab countries include specific requirements that in cases of fraudulent financial reporting affecting investors' investments the auditor should be imprisoned.

A challenge associated with the fundamental ethical principles stated in the Code of Ethics for Professional Accountants is:

Maintaining financial statements users' perception of independence is referred to as independence in:

Which of the following statements is True? An audit firm will breach Section 290 of the Code of Ethics on financial interest if:

Section 290 of the Code of Ethics prohibits specific members of an audit firm from owning any stock or having indirect material interest in audit clients. This includes all but which of the following?

The financial interests of which of the following parties would not be included as a 'direct financial interest' of the CPA?

Rules regarding financial allow an auditor to serve as:

When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same private company client, the Code of Ethics:

Which of the following activities is allowed for a audit firm's public interest audit clients?

The IESBA Code of Ethics (Section 290) requires that an individual shall not be a key audit partner in respect of a public interest entity for more than?