Solution Manual For Auditing & Assurance Services: A Systemat
g g g g g g g g
ic Approach, 12th Edition By William Messier Jr, Steven Glover,
g g g g g g g g g g
A(n)g________gfailuregoccursgwhengangauditorgissuesgangerroneousgopiniongbecausegitg
failedgtogcomplygwithgrequirementsgofgauditinggstandards.g-gANSWER:gaudit
Distinguishgbetweengwhatgisgmeantgbygbusinessgfailuregandgauditgfailureg-
gANSWER:g:gBusinessgfailuregoccursgwhengagbusinessgisgunablegtogrepaygitsglendersgorgm
eetgexpectationsgofgitsginvestorsgbecausegofgeconomicgorgbusinessgconditions,gsuchgasg
recession,gpoorgmanagementgdecisions,gorgunexpectedgcompetitiongingthegindustry.gA
uditgfailuregoccursgwhengthegauditorgissuesgangincorrectgauditgopiniongbecausegitgfailed
gtogcomplygwithgthegrequirementsgofgauditinggstandards.
Auditgriskgisgthegriskgtheregwillgbegangauditgfailuregforgaggivengauditgengagement.g-
gANSWER:gFalse
Thegtermg"auditgfailure"grefersgtogthegsituationgwhengthegauditorghasgfollowedgauditing
gstandardsgyetgstillgfailsgtogdiscovergthatgthegclient'sgfinancialgstatementsgaregmaterially
gmisstated.g-gANSWER:gfalse
Ingthegperformancegofgangaudit,gagCPA:
A)gisglegallygliablegforgnotgdetectinggclientgfraud.
B)gmustgstrictlygfollowgGAASgforgprivatelygheldgclients.
C)gmustgstrictlygfollowgPCAOBgauditinggstandardsgforgpubliclygheldgclients.
D)gmustgexercisegduegprofessionalgcaregingthegperformancegofgtheirgauditgresponsibiliti
es.g-gANSWER:gD
Auditorsgwhogfailgtogexercisegduegcaregingtheirgperformancegofgprofessionalgservicesgm
aygbegliablegfor:
A)gpunitivegliability.
B)gbreachgofgcontract.
C)gexcessgliability.
D)gcriminalgchargesg-gANSWER:gB
Recklessnessgingthegcasegofgangauditgisgpresentgifgthegauditorgknewgangadequategauditg
wasgnotgdonegbutgstillgissuedgangopinion,gevengthoughgtheregwasgnogintentgtogdeceivegfi
nancialgstatementgusers.gThisgdescriptiongisgtheglegalgtermgfor:
A)gordinarygnegligence.
B)ggrossgnegligence.
C)gconstructivegfraud.
D)gfraud.g-gANSWER:gC
Thegstandardgofgduegcaregtogwhichgthegauditorgisgexpectedgtogadheregtogingthegperform
ancegofgthegauditgisgreferredgtogasgthe:
A)gprudentgpersongconcept.
,B)gcommonglawgdoctrine.
C)gduegcaregconcept.
D)gvigilantgpersongconcept.g-gANSWER:gA
Auditorsgmaygbegliablegtogtheirgclientsgfor:
A)g
PunitivegdamagesgCompensatorygdamages
YesgYes
B)g
PunitivegdamagesgCompensatorygdamages
NogNo
C)g
PunitivegdamagesgCompensatorygdamages
YesgNo
D)g
PunitivegdamagesgCompensatorygdamages
NogYesg-gANSWER:gA
Undergtheglawsgofgagency,gpartnersgofgagCPAgfirmgmaygbegliablegforgthegworkgofgothersg
ongwhomgtheygrely.gThisgwouldgnotginclude:
A)gemployeesgofgthegCPAgfirm.
B)gemployeesgofgthegauditgclient.
C)gothergCPAgfirmsgengagedgtogdogpartgofgthegauditgwork.
D)gspecialistsgemployedgbygthegCPAgfirmgtogprovidegtechnicalgadvicegongthegaudit.g-
gANSWER:gB
"Absencegofgreasonablegcaregthatgcangbegexpectedgofgagpersongingagsetgofgcircumstance
s"gdefines:
A)gpecuniarygnegligence.
B)ggrossgnegligence.
C)gextremegnegligence.
D)gordinarygnegligence.g-gANSWER:gD
Angexamplegofgagbreachgofgcontractgwouldglikelyginclude:
A)gangauditor'sgrefusalgtogreturngthegclient'sggeneralgledgergbookguntilgthegclientgpaidgla
stgyear'sgauditgfees.
B)gagbank'sgclaimgthatgangauditorghadgagdutygtoguncovergmaterialgerrorsgingfinancialgstat
ementsgthatghadgbeengreliedgongingmakinggagloan.
C)gagCPAgfirm'sgfailuregtogcompletegangauditgongthegagreed-
upongdategbecausegthegfirmghadgagbackloggofgothergworkgwhichgwasgmoreglucrative.
D)gangauditor'sgclaimgthatgthegclientgstaffgisgunqualified.g-gANSWER:gC
Privitygofgcontractgexistsgbetween:
A)gauditorgandgthegfederalggovernment.
,B)gauditorgandgthirdgparties.
C)gauditorgandgclient.
D)gauditorgandgclientgattorneyg-gANSWER:gC
AngindividualgwhogisgnotgpartygtogthegcontractgbetweengagCPAgandgthegclient,gbutgwhogi
sgknowngbygbothgandgisgintendedgtogreceivegcertaingbenefitsgfromgthegcontractgisgknow
ngas:g
A)gagthirdgparty.
B)gagcommonglawginheritor.
C)gagtort.
D)gagthird-partygbeneficiary.g-gANSWER:gD
LawsgthatghavegbeengpassedgbygthegU.S.gCongressgandgotherggovernmentalgunitsgare:
A)gstatutoryglaws.
B)gjudicialglaws.
C)gfederalglaws.
D)gcommonglaws.g-gANSWER:gA
Thegassessmentgagainstgagdefendantgofgthegfullglossgsufferedgbygagplaintiffgregardlessgof
gthegextentgtogwhichgothergpartiesgsharedgingthegwrongdoinggisgcalled:
A)gseparategandgproportionategliability.
B)gsharedgliability.
C)gunitarygliability.
D)gjointgandgseveralgliability.g-gANSWER:gD
Thegassessmentgagainstgagdefendantgofgthatgportiongofgthegdamagegcausedgbygthegdefe
ndant'sgnegligencegisgcalled:
A)gseparategandgproportionategliability.
B)gjointgandgseveralgliability.
C)gsharedgliability.
D)gunitarygliabilityg-gANSWER:gA
Auditgfraudgoccursgwhen:
A)gagmisstatementgisgmadegandgtheregisgbothgknowledgegofgitsgfalsitygandgthegintentgtog
deceive.
B)gagmisstatementgisgmadegandgtheregisgknowledgegofgitsgfalsitygbutgnogintentgtogdeceiv
e.
C)gthegauditorglacksgevengslightgcaregingthegperformancegingperforminggthegaudit.
D)gthegauditorghasgangabsencegofgreasonablegcaregingthegperformancegofgthegaudit.g-
gANSWER:gA
Whichgofgthegfollowinggmostgaccuratelygdescribesgconstructivegfraud?
A)gAbsencegofgreasonablegcare
B)gLackgofgslightgcare
C)gKnowledgegandgintentgtogdeceive
D)gExtremegorgunusualgnegligencegwithoutgthegintentgtogdeceiveg-gANSWER:gD
, Whichgofgthegfollowinggmostgaccuratelygdescribesgfraud?
A)gAbsencegofgreasonablegcare
B)gLackgofgslightgcare
C)gKnowledgegandgintentgtogdeceive
D)gExtremegorgunusualgnegligencegwithoutgthegintentgtogdeceiveg-gANSWER:gC
Agthird-partygbeneficiarygisgonegwhich:g
A)ghasgfailedgtogestablishglegalgstandinggbeforegthegcourt.
B)gdoesgnotghavegprivitygofgcontractgandgisgunknowngtogthegcontractinggparties.
C)gdoesgnotghavegprivitygofgcontract,gbutgisgknowngtogthegcontractinggpartiesgandginten
dedgtogbenefitgundergthegcontract.
D)gmaygestablishglegalgstandinggbeforegthegcourtgaftergagcontractghasgbeengconsummat
ed.g-gANSWER:gC
)gIfgthegCPAgnegligentlygfailedgtogproperlygpreparegandgfilegagclient'sgtaxgreturn,gthegCPA
gmaygbegliablegfor:
A)gthegpenaltiesgthegclientgowesgthegIRS.
B)gthegpenaltiesgandginterestgthegclientgowes.
C)gthegpenaltiesgandginterestgthegclientgowes,gplusgthegtaxgpreparationgfeegthegCPAgcha
rged.
D)gthegpenaltiesgandginterest,gthegtaxgpreparationgfee,gandgthegamountgofgtaxgthatgwasg
underpaid.g-gANSWER:gC
Whichgofgthegfollowing,gifgpresent,gwouldgmostglikelygsupportgagfindinggofgconstructiveg
fraudgongthegpartgofgagCPA?
A)gGrossgnegligencegingapplyinggGAAS
B)gOrdinarygnegligencegingapplyinggGAAS
C)gLackgofgdutygtogperform
D)gContributorygnegligenceg-gANSWER:gA
Whichgofgthegfollowinggstatementsgisgtrue?
A)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
1.)Yesg2.)Yesg3.)No
B)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
1.)Nog2.)Yesg3.)No
C)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
g g g g g g g g
ic Approach, 12th Edition By William Messier Jr, Steven Glover,
g g g g g g g g g g
A(n)g________gfailuregoccursgwhengangauditorgissuesgangerroneousgopiniongbecausegitg
failedgtogcomplygwithgrequirementsgofgauditinggstandards.g-gANSWER:gaudit
Distinguishgbetweengwhatgisgmeantgbygbusinessgfailuregandgauditgfailureg-
gANSWER:g:gBusinessgfailuregoccursgwhengagbusinessgisgunablegtogrepaygitsglendersgorgm
eetgexpectationsgofgitsginvestorsgbecausegofgeconomicgorgbusinessgconditions,gsuchgasg
recession,gpoorgmanagementgdecisions,gorgunexpectedgcompetitiongingthegindustry.gA
uditgfailuregoccursgwhengthegauditorgissuesgangincorrectgauditgopiniongbecausegitgfailed
gtogcomplygwithgthegrequirementsgofgauditinggstandards.
Auditgriskgisgthegriskgtheregwillgbegangauditgfailuregforgaggivengauditgengagement.g-
gANSWER:gFalse
Thegtermg"auditgfailure"grefersgtogthegsituationgwhengthegauditorghasgfollowedgauditing
gstandardsgyetgstillgfailsgtogdiscovergthatgthegclient'sgfinancialgstatementsgaregmaterially
gmisstated.g-gANSWER:gfalse
Ingthegperformancegofgangaudit,gagCPA:
A)gisglegallygliablegforgnotgdetectinggclientgfraud.
B)gmustgstrictlygfollowgGAASgforgprivatelygheldgclients.
C)gmustgstrictlygfollowgPCAOBgauditinggstandardsgforgpubliclygheldgclients.
D)gmustgexercisegduegprofessionalgcaregingthegperformancegofgtheirgauditgresponsibiliti
es.g-gANSWER:gD
Auditorsgwhogfailgtogexercisegduegcaregingtheirgperformancegofgprofessionalgservicesgm
aygbegliablegfor:
A)gpunitivegliability.
B)gbreachgofgcontract.
C)gexcessgliability.
D)gcriminalgchargesg-gANSWER:gB
Recklessnessgingthegcasegofgangauditgisgpresentgifgthegauditorgknewgangadequategauditg
wasgnotgdonegbutgstillgissuedgangopinion,gevengthoughgtheregwasgnogintentgtogdeceivegfi
nancialgstatementgusers.gThisgdescriptiongisgtheglegalgtermgfor:
A)gordinarygnegligence.
B)ggrossgnegligence.
C)gconstructivegfraud.
D)gfraud.g-gANSWER:gC
Thegstandardgofgduegcaregtogwhichgthegauditorgisgexpectedgtogadheregtogingthegperform
ancegofgthegauditgisgreferredgtogasgthe:
A)gprudentgpersongconcept.
,B)gcommonglawgdoctrine.
C)gduegcaregconcept.
D)gvigilantgpersongconcept.g-gANSWER:gA
Auditorsgmaygbegliablegtogtheirgclientsgfor:
A)g
PunitivegdamagesgCompensatorygdamages
YesgYes
B)g
PunitivegdamagesgCompensatorygdamages
NogNo
C)g
PunitivegdamagesgCompensatorygdamages
YesgNo
D)g
PunitivegdamagesgCompensatorygdamages
NogYesg-gANSWER:gA
Undergtheglawsgofgagency,gpartnersgofgagCPAgfirmgmaygbegliablegforgthegworkgofgothersg
ongwhomgtheygrely.gThisgwouldgnotginclude:
A)gemployeesgofgthegCPAgfirm.
B)gemployeesgofgthegauditgclient.
C)gothergCPAgfirmsgengagedgtogdogpartgofgthegauditgwork.
D)gspecialistsgemployedgbygthegCPAgfirmgtogprovidegtechnicalgadvicegongthegaudit.g-
gANSWER:gB
"Absencegofgreasonablegcaregthatgcangbegexpectedgofgagpersongingagsetgofgcircumstance
s"gdefines:
A)gpecuniarygnegligence.
B)ggrossgnegligence.
C)gextremegnegligence.
D)gordinarygnegligence.g-gANSWER:gD
Angexamplegofgagbreachgofgcontractgwouldglikelyginclude:
A)gangauditor'sgrefusalgtogreturngthegclient'sggeneralgledgergbookguntilgthegclientgpaidgla
stgyear'sgauditgfees.
B)gagbank'sgclaimgthatgangauditorghadgagdutygtoguncovergmaterialgerrorsgingfinancialgstat
ementsgthatghadgbeengreliedgongingmakinggagloan.
C)gagCPAgfirm'sgfailuregtogcompletegangauditgongthegagreed-
upongdategbecausegthegfirmghadgagbackloggofgothergworkgwhichgwasgmoreglucrative.
D)gangauditor'sgclaimgthatgthegclientgstaffgisgunqualified.g-gANSWER:gC
Privitygofgcontractgexistsgbetween:
A)gauditorgandgthegfederalggovernment.
,B)gauditorgandgthirdgparties.
C)gauditorgandgclient.
D)gauditorgandgclientgattorneyg-gANSWER:gC
AngindividualgwhogisgnotgpartygtogthegcontractgbetweengagCPAgandgthegclient,gbutgwhogi
sgknowngbygbothgandgisgintendedgtogreceivegcertaingbenefitsgfromgthegcontractgisgknow
ngas:g
A)gagthirdgparty.
B)gagcommonglawginheritor.
C)gagtort.
D)gagthird-partygbeneficiary.g-gANSWER:gD
LawsgthatghavegbeengpassedgbygthegU.S.gCongressgandgotherggovernmentalgunitsgare:
A)gstatutoryglaws.
B)gjudicialglaws.
C)gfederalglaws.
D)gcommonglaws.g-gANSWER:gA
Thegassessmentgagainstgagdefendantgofgthegfullglossgsufferedgbygagplaintiffgregardlessgof
gthegextentgtogwhichgothergpartiesgsharedgingthegwrongdoinggisgcalled:
A)gseparategandgproportionategliability.
B)gsharedgliability.
C)gunitarygliability.
D)gjointgandgseveralgliability.g-gANSWER:gD
Thegassessmentgagainstgagdefendantgofgthatgportiongofgthegdamagegcausedgbygthegdefe
ndant'sgnegligencegisgcalled:
A)gseparategandgproportionategliability.
B)gjointgandgseveralgliability.
C)gsharedgliability.
D)gunitarygliabilityg-gANSWER:gA
Auditgfraudgoccursgwhen:
A)gagmisstatementgisgmadegandgtheregisgbothgknowledgegofgitsgfalsitygandgthegintentgtog
deceive.
B)gagmisstatementgisgmadegandgtheregisgknowledgegofgitsgfalsitygbutgnogintentgtogdeceiv
e.
C)gthegauditorglacksgevengslightgcaregingthegperformancegingperforminggthegaudit.
D)gthegauditorghasgangabsencegofgreasonablegcaregingthegperformancegofgthegaudit.g-
gANSWER:gA
Whichgofgthegfollowinggmostgaccuratelygdescribesgconstructivegfraud?
A)gAbsencegofgreasonablegcare
B)gLackgofgslightgcare
C)gKnowledgegandgintentgtogdeceive
D)gExtremegorgunusualgnegligencegwithoutgthegintentgtogdeceiveg-gANSWER:gD
, Whichgofgthegfollowinggmostgaccuratelygdescribesgfraud?
A)gAbsencegofgreasonablegcare
B)gLackgofgslightgcare
C)gKnowledgegandgintentgtogdeceive
D)gExtremegorgunusualgnegligencegwithoutgthegintentgtogdeceiveg-gANSWER:gC
Agthird-partygbeneficiarygisgonegwhich:g
A)ghasgfailedgtogestablishglegalgstandinggbeforegthegcourt.
B)gdoesgnotghavegprivitygofgcontractgandgisgunknowngtogthegcontractinggparties.
C)gdoesgnotghavegprivitygofgcontract,gbutgisgknowngtogthegcontractinggpartiesgandginten
dedgtogbenefitgundergthegcontract.
D)gmaygestablishglegalgstandinggbeforegthegcourtgaftergagcontractghasgbeengconsummat
ed.g-gANSWER:gC
)gIfgthegCPAgnegligentlygfailedgtogproperlygpreparegandgfilegagclient'sgtaxgreturn,gthegCPA
gmaygbegliablegfor:
A)gthegpenaltiesgthegclientgowesgthegIRS.
B)gthegpenaltiesgandginterestgthegclientgowes.
C)gthegpenaltiesgandginterestgthegclientgowes,gplusgthegtaxgpreparationgfeegthegCPAgcha
rged.
D)gthegpenaltiesgandginterest,gthegtaxgpreparationgfee,gandgthegamountgofgtaxgthatgwasg
underpaid.g-gANSWER:gC
Whichgofgthegfollowing,gifgpresent,gwouldgmostglikelygsupportgagfindinggofgconstructiveg
fraudgongthegpartgofgagCPA?
A)gGrossgnegligencegingapplyinggGAAS
B)gOrdinarygnegligencegingapplyinggGAAS
C)gLackgofgdutygtogperform
D)gContributorygnegligenceg-gANSWER:gA
Whichgofgthegfollowinggstatementsgisgtrue?
A)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
1.)Yesg2.)Yesg3.)No
B)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
1.)Nog2.)Yesg3.)No
C)g
1.)Grossgnegligencegmaygconstitutegconstructivegfraudg2.)Fraudgrequiresgthegintentgtog
deceiveg
3.)Allgfraudgshouldgbegdetectedgduringgaudit
