A Client Is Suing a PA Firm, Claiming That the Firm

question 8

Multiple Choice

A client is suing a PA firm, claiming that the firm is responsible for the losses suffered from a fraud in the payroll department that was not uncovered during the year-end testing done by the auditor. The auditors did indicate to management that controls over payroll calculations and payments were weak, as there was improper segregation of duties. The auditor's best defence is

• A) contributory negligence.
• B) absence of negligence.
• C) absence of causal connection.
• D) no damages.

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Definitions:

Assets Test

A means of determining eligibility for certain government assistance programs based on the value of an individual's or entity's assets.

Reportable Segments

Components of an enterprise about which separate financial information is available and is evaluated regularly by the chief decision-maker in deciding how to allocate resources.

Assets

Economic resources owned or controlled by a business, viewed as having value and expected to provide future benefits to the operations.

Profits

The net income received by a company after deducting all expenses, taxes, and costs.