Hark, CPA, Failed to Follow All Generally Accepted Auditing Standards

question 42

Multiple Choice

Hark, CPA, failed to follow all generally accepted auditing standards in auditing Long Corp.'s financial statements, but the failure would not amount to gross negligence. Long's management had told Hark that the audited statements would be submitted to several banks to obtain financing. Relying on the statements, Third Bank gave Long a loan. Long defaulted on the loan. In a jurisdiction applying the Ultramares doctrine, if Third sues Hark, Hark will:

• A)win because there was no privity of contract between Hark and Third.
• B)lose because Hark knew that banks would be relying on the financial statements.
• C)win because there was contributory negligence on the part of Third in granting the loan.
• D)lose because Hark was negligent in performing the audit.

Demonstrate knowledge of how to journalize purchases, returns, allowances, and payments under a perpetual inventory system.

Distinguish between different types of accounts, their normal balances, and where they are reported in financial statements.

Compute the payables and payment amounts within discount periods.

Understand the recording of inventory purchases and returns under both the perpetual and periodic inventory methods.

---

Definitions:

Specialize

The process of focusing on a narrow area of expertise or production, allowing individuals or firms to increase efficiency and quality.

Domestic Price

The price of goods or services within a country's borders, as opposed to their price when exported.

World Price

The global market price of a good or service, determined by supply and demand across all countries.

Export Supply Curve

A graphical representation that shows the relationship between the price of a good on the international market and the quantity of the good that a country is willing to export.