17) 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.
18) 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.
19) Constructive fraud:
A) is also known as recklessness.
B) requires an intent to deceive.
C) involves collusion with the client.
D) is also known as breach of contract.
20) Which of the following statements is true?
A)
Gross negligence may constitute constructive fraud
Fraud requires the intent to deceive
All fraud should be detected during audit
Yes
Yes
No
B)
Gross negligence may constitute constructive fraud
Fraud requires the intent to deceive
All fraud should be detected during audit
No
Yes
No
C)
Gross negligence may constitute constructive fraud
Fraud requires the intent to deceive
All fraud should be detected during audit
Yes
No
Yes
D)
Gross negligence may constitute constructive fraud
Fraud requires the intent to deceive
All fraud should be detected during audit
No
No
No
21) The laws that have been developed through court decisions are called:
A) common laws.
B) criminal laws.
C) statutory laws.
D) civil laws.
22) Gregory & Hedrick, a medium-sized CPA firm, employed Elise as a staff accountant. Elise was negligent while auditing several of the firm’s clients. Under these circumstances, which of the following statements is true?
A) Elise would have no personal liability for negligence.
B) Gregory & Hedrick is not liable for Elise’s negligence because CPAs are generally considered to be independent contractors.
C) Gregory & Hedrick would not be liable for Elise’s negligence if Elise disobeyed specific instructions in the performance of the audits.
D) Gregory & Hedrick can recover against its insurer on its malpractice policy even if one of the partners was also negligent in reviewing Elise’s work.
23) The legal term for when an auditor issues an audit opinion, knowing that an adequate audit was not performed is a:
A) breach of contract.
B) tort action for negligence.
C) constructive fraud.
D) fraud.