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Auditing & Assurance Services
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Solution Manual for Auditing & Assurance Services A Systematic Approach 12th Edition by William Messier Jr, Steven Glover, Douglas Prawit
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Solution Manual For Auditing & Assurance Services: ASystematic Approach, 12th Edition By William Messier Jr,
Steven Glover, Verified Chapters 1 - 21, Complete Newest
Version
A(n) ________ failure occurs when an auditor issues an erroneous opinion because it
failed to comply with requirements of auditing standards. - ANSWER: audit
Distinguish between what is meant by business failure and audit failure - ANSWER: :
Business failure occurs when a business is unable to repay its lenders or meet
expectations of its investors because of economic or business conditions, such as
recession, poor management decisions, or unexpected competition in the industry.
Audit failure occurs when the auditor issues an incorrect audit opinion because it
failed to comply with the requirements of auditing standards.
Audit risk is the risk there will be an audit failure for a given audit engagement. -
ANSWER: False
The term "audit failure" refers to the situation when the auditor has followed
auditing standards yet still fails to discover that the client's financial statements are
materially misstated. - ANSWER: false
In the performance of an audit, a CPA:
A) is legally liable for not detecting client fraud.
B) must strictly follow GAAS for privately held clients.
C) must strictly follow PCAOB auditing standards for publicly held clients.
D) must exercise due professional care in the performance of their audit
responsibilities. - ANSWER: D
Auditors who fail to exercise due care in their performance of professional services
may be liable for:
A) punitive liability.
B) breach of contract.
C) excess liability.
D) criminal charges - ANSWER: B
Recklessness in the case of an audit is present if the auditor knew an adequate audit
was not done but still issued an opinion, even though there was no intent to deceive
financial statement users. This description is the legal term for:
A) ordinary negligence.
B) gross negligence.
C) constructive fraud.
D) fraud. - ANSWER: C
,The standard of due care to which the auditor is expected to adhere to in the
performance of the audit is referred to as the:
A) prudent person concept.
B) common law doctrine.
C) due care concept.
D) vigilant person concept. - ANSWER: A
Auditors may be liable to their clients for:
A)
Punitive damages Compensatory damages
Yes Yes
B)
Punitive damages Compensatory damages
No No
C)
Punitive damages Compensatory damages
Yes No
D)
Punitive damages Compensatory damages
No Yes - ANSWER: A
Under the laws of agency, partners of a CPA firm may be liable for the work of others
on whom they rely. This would not include:
A) employees of the CPA firm.
B) employees of the audit client.
C) other CPA firms engaged to do part of the audit work.
D) specialists employed by the CPA firm to provide technical advice on the audit. -
ANSWER: B
"Absence of reasonable care that can be expected of a person in a set of
circumstances" defines:
A) pecuniary negligence.
B) gross negligence.
C) extreme negligence.
D) ordinary negligence. - ANSWER: D
An example of a breach of contract would likely include:
A) an auditor's refusal to return the client's general ledger book until the client paid
last year's audit fees.
B) a bank's claim that an auditor had a duty to uncover material errors in financial
statements that had been relied on in making a loan.
C) a CPA firm's failure to complete an audit on the agreed-upon date because the
firm had a backlog of other work which was more lucrative.
D) an auditor's claim that the client staff is unqualified. - ANSWER: C
,Privity of contract exists between:
A) auditor and the federal government.
B) auditor and third parties.
C) auditor and client.
D) auditor and client attorney - ANSWER: C
An individual who is not party to the contract between a CPA and the client, but who
is known by both and is intended to receive certain benefits from the contract is
known as:
A) a third party.
B) a common law inheritor.
C) a tort.
D) a third-party beneficiary. - ANSWER: D
Laws that have been passed by the U.S. Congress and other governmental units are:
A) statutory laws.
B) judicial laws.
C) federal laws.
D) common laws. - ANSWER: A
The assessment against a defendant of the full loss suffered by a plaintiff regardless
of the extent to which other parties shared in the wrongdoing is called:
A) separate and proportionate liability.
B) shared liability.
C) unitary liability.
D) joint and several liability. - ANSWER: D
The assessment against a defendant of that portion of the damage caused by the
defendant's negligence is called:
A) separate and proportionate liability.
B) joint and several liability.
C) shared liability.
D) unitary liability - ANSWER: A
Audit fraud occurs when:
A) a misstatement is made and there is both knowledge of its falsity and the intent
to deceive.
B) a misstatement is made and there is knowledge of its falsity but no intent to
deceive.
C) the auditor lacks even slight care in the performance in performing the audit.
D) the auditor has an absence of reasonable care in the performance of the audit. -
ANSWER: A
Which of the following most accurately describes constructive fraud?
A) Absence of reasonable care
B) Lack of slight care
, C) Knowledge and intent to deceive
D) Extreme or unusual negligence without the intent to deceive - ANSWER: D
Which of the following most accurately describes fraud?
A) Absence of reasonable care
B) Lack of slight care
C) Knowledge and intent to deceive
D) Extreme or unusual negligence without the intent to deceive - ANSWER: C
A third-party beneficiary is one which:
A) has failed to establish legal standing before the court.
B) does not have privity of contract and is unknown to the contracting parties.
C) does not have privity of contract, but is known to the contracting parties and
intended to benefit under the contract.
D) may establish legal standing before the court after a contract has been
consummated. - ANSWER: C
) If the CPA negligently failed to properly prepare and file a client's tax return, the
CPA may be liable for:
A) the penalties the client owes the IRS.
B) the penalties and interest the client owes.
C) the penalties and interest the client owes, plus the tax preparation fee the CPA
charged.
D) the penalties and interest, the tax preparation fee, and the amount of tax that
was underpaid. - ANSWER: C
Which of the following, if present, would most likely support a finding of constructive
fraud on the part of a CPA?
A) Gross negligence in applying GAAS
B) Ordinary negligence in applying GAAS
C) Lack of duty to perform
D) Contributory negligence - ANSWER: A
Which of the following statements is true?
A)
1.)Gross negligence may constitute constructive fraud 2.)Fraud requires the intent to
deceive
3.)All fraud should be detected during audit
1.)Yes 2.)Yes 3.)No
B)
1.)Gross negligence may constitute constructive fraud 2.)Fraud requires the intent to
deceive
3.)All fraud should be detected during audit
1.)No 2.)Yes 3.)No
C)
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