Question 1. Which of the following is not a tort?
a. Beach of contract
b. Negligence
c. Gross negligence
d. Fraud
e. Ordinary negligence
Question 2. The Fund of Funds case illustrated that auditors could be found liable for failure to report wrong-doings discovered:
a. Only on audit engagements for a particular client.
b. on any type of engagement for a particular client.
c. Only on special fraud audits conducted under separate contract.
d. even on engagements for other clients.
e. Even on engagements for consulting clients.
Question 3. Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:
a. client intent to distribute the financial statements.
b. names or identities of the expected users.
c. type of transaction the information is to be used to support.
d. fact that the client's management created fictitious transactions.
e. fact that the client's management had knowledge of material misrepresentations in the financial statements.
Question 4. All of the following are true with respect to the plaintiff in a suit under the 1933 Securities Act except the plaintiff:
a. may be any person acquiring securities described in the registration statement, whether or not he or she is a client of the auditor.
b. must establish that his or her loss resulted in whole or in part from causes other than the false or misleading statements.
c. must base the claim on an alleged material false or misleading financial statement contained in the registration statement.
d. does not have to prove reliance on the false or misleading statement or that the loss suffered was the proximate result of the statement if purchase was made before the issuance of an income statement covering a period of at least twelve months following the effective date of the registration statement.
e. does not have to prove that the auditors were negligent or fraudulent in certifying the financial statements involved.
Question 5. If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:
a. fraudulent misconduct.
b. gross misconduct.
c. ordinary negligence.
d. contributory negligence.
e. gross negligence.
Question 6. The rights and obligations assertion applies to:
a. current liability items only.
b. revenue and expense items only.
c. both income statement and balance sheet items.
d. Assets that are not owned by the company.
e. balance sheet items only.
Question 7. Which of the following statements about understanding internal control is not true:
a. The auditor uses the knowledge of the system of internal control to design further audit procedures to collect evidence.
b. In the presence of a strong system of internal control, the auditor may choose to collect less evidence about transactions or balances.
c. In the audit of a private company, it is necessary to express an opinion on the system of internal control over financial reporting.
d. A thorough understanding of the system of internal control assists the auditor in identifying potential types of misstatements.
e. A thorough understanding of the system of internal control assists the auditor in understanding the risk of material misstatements.
Question 8. Which of these is not a category of substantive tests?
a. Initial procedures.
b. Tests of details of balances.
c. Tests of details of disclosures.
d. Tests of internal controls.
e. Tests of details of transactions.
Question 9. Managerial accounting
a. is concerned with costing products.
b. is governed by generally accepted accounting principles.
c. pertains to the entity as a whole and is highly aggregated.
d. places emphasis on special-purpose information.
Question 10. Which one of the following costs would be included in manufacturing overhead of a lawn mower manufacturer?
a. The cost of the wheels
b. The cost of the fuel lines that run from the motor to the gas tank
c. Depreciation on the testing equipment
d. The wages earned by motor assemblers