MULTIPLE CHOICE QUESTIONS FROM BECKER CPA EXAM REVIEW
LEGAL LIABILITY
DISCUSSION QUESTIONS AND PROBLEMS
5-17 (OBJECTIVES 5-3, 5-4, 5-5, 5-6) Following are eight statements with missing terms involving auditor legal liability.
1. ________________ is generally only available as a defense in suits brought by clients.
2. Under the Ultramares doctrine, an auditor is generally not liable for
___________________ to third parties lacking ___________________.
3. A third party lacking privity will often be successful in bringing a claim against the
auditor if they can demonstrate ___________________ or ___________________.
4. The broadest class of third parties under common law is known as _______________.
5. Under the 1933 Act, plaintiffs do not have to demonstrate ___________________,
but need merely demonstrate the existence of a(n) ___________________.
6. The auditor will use a defense of ___________________ in a suit brought under the
1933 Securities Act.
7. Based on the ruling in Hochfelder v. Ernst & Ernst, an auditor generally must have knowledge and ___________ to be found guilty of a violation of Rule 10b-5 of the 1934 Act.
8. After passage of the Private Securities Litigation Reform Act, auditors generally have
___________________ liability in federal securities cases.
Terms
a. Due diligence g. Intent to deceive
b. Reliance on the financial statements h. Privity of contract
c. Fraud i. Gross negligence
d. Ordinary negligence j. Foreseen users
e. Separate and proportionate k. Material error or omission
f. Contributory negligence
For each of the 11 blanks in statements 1 through 8, identify the most appropriate term.
No term can be used more than once.
