Chapter 24–Practice ExamMatching QuestionsMatch the following terms with their definitions:A. GAASB. TracingC. Qualified opinionD. GAAPE. VouchingF. Unqualified opinion1. Rules for preparing financial statements.2. Accountants check backwards to ensure there are data to support a transaction.3. Clean opinion.4. Rules for conducting audits.5. Accountants check a transaction forward to ensure it has been properly recorded.6. There is some uncertainty in the financial statements.True/False QuestionsCircle true or false:1. T F Auditors are only liable under the 1933 Act if they intentionally misrepresent financial statements.2. T F Auditors generally are not liable if they follow GAAP and GAAS.3. T F Under the 1934 Act, accountants are liable for negligent behavior..4. T F If auditors discover that company officers have committed an illegal act, they must immediately report this wrongdoing to the SEC.5. T F Under federal law, accounting firms may not provide any consulting services to companies that they audit.Multiple-Choice Questions1. To be successful in a suit under the Securities Act of 1933, the plaintiff must prove:Important mistake in the registration statement Plaintiff lost money(a) No Yes(b) No No(c) Yes No(d) Yes Yes2. An accountant is liable to a client for conducting an audit negligently if the accountant:(a) Acted with intent.(b) Was a fiduciary of the client.(c) Failed to exercise due care.(d) Executed an engagement letter.3. Which of the following statements about Sarbanes-Oxley is not true?a. All accounting firms that audit public companies must register with the PCAOB.b. Auditors must report to the CEO of the company they are auditing.c. Auditing firms cannot base their employeesâ compensation on sales of consulting services to clients.d. An accounting firm cannot audit a company if one of the clientâs top officers has worked for that firm within the prior year and was involved in the companyâs audit.e. Every five years, the lead audit partner must rotate off an audit account.4. For a client to prove a case of fraud against an accountant, the following element is not required:(a) The client lost money.(b) The accountant made a false statement of fact.(c) The client relied on the false statement.(d) The accountant knew the statement was false.(e) The accountant was reckless.5. Dusty is trying to buy an office building to house his growing consulting firm. When Luke, a landlord, asks to see a set of financials, Dusty asks his accountant Ellen to prepare a set for Luke. Dusty shows these financials to a number of landlords, including Carter. Dusty rents from Carter. Ellen has been careless and the financials are inaccurate. Dusty cannot pay his rent and Carter files suit against Ellen. Which of the following statements is true?(a) Carter will win because Ellen was careless.(b) Carter will win because Ellen was careless and she knew that landlords would see the financials(c) Carter will lose because Ellen did not know that he would see the financials.d) Carter will lose because he had no contract with Ellen.6. Ted prepared fraudulent financial statements for the Arbor Corp. Lacy read these statements before purchasing stock in the company. When Arbor goes bankrupt, Lacy sues Ted.(a) Lacy will win because it was foreseeable that she would rely on these statements.(b) Lacy will win because Ted was negligent.(c) Lacy will lose because she did not rely on these statements.(d) Lacy will lose because it was not foreseeable and she did not rely on these statements.(e) Lacy will lose because it is not foreseeable that she would rely on these statements.
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