Question

1. Which of the following is false regarding common and federal securities laws? a. The securities act of 1933 deals only with the reporting requirements for companies issuing new securities. b. -Rule 10-5b of the securities exchange act of 1934 is also known as the antifraud provision. C. -Ultramares doctrine states that ordinary negligence is insufficient for liability to third parties because of the lack of privity of contracts. d. A scienter is a specialist used in Rule 10-5b investigations. 2. The engagement letter explains management and auditor responsibilities. -True -False 3. An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected. -True -False 4. Which of the following is false regarding audit objectives? a. The term audit objectives refers to transaction-related, balance related, and presentation and disclosure related audit objectives. b. It is usually practical for Auditors to obtain complete Assurance about the correctness of accounts receivable. C. Presentation and disclosure is an audit objective. d. Several audit objectives must be meant for each account balance. 5. The auditor's audit objectives follow and are closely related to management assertions. -True -False 6. Which of the following is false regarding legal liability? a. Foreseeable users are users the auditor should have reasonably been able to foresee as likely users of the client's financial statements. b. The SEC has the authority to sanction. C. The sarbanes-oxley ACT requires the Auditors to certify the annual financial statements filed with the SEC. d. Rule 10/5 B of the Securities Act of 1934 is often called the anti-fraud provision.

Answer 1

1. Answer is "D" : "A scienter is a specialist used in Rule 10-5B investigations.

Reason : Scienter is not a specialist, rather it is a word used in Rule 10-5B to indicate that negligence is not sufficient for a claim under 10b-5.

2. Answer is "True"

Reason : Engagement letter does contain the auditor's and management's responsibilities. This is mandated by ISA.

3. Answer is "False"

Reason : Audit provides "REASONABLE" assurance that no illegal acts or frauds have taken place and not no assurance.

4. Answer is "B" : It is practical for the auditor to obtain complete assurance about accounts receivable.

Reason : Auditor can only provide reasonable assurance and not complete assurance about the correctness of accounts receivable due to the inherent limitations of an audit.

5. Answer is "True"

Reason : Audit objective is to express an opinion as to whether the financial statements represent a true and fair view which the auditor determines by checking whether all of the management assertions have been appropriately met or not.

6. Answer is "B" : SEC has authority to sanction

Reason : SEC does not have authority to sanction. Also all other parts provided in the question are true and hence the answer is B.