18. Inherent risk and control risk differ from planned detection risk in that they A. arise from the misapplication of auditing procedures B. may be assessed in either quantitative or nonquantitative terms C. exist independently of the financial statement audi D. can be changed at the auditor's discretion 19. When obtaining evidence regarding litigation against a client, the CPA would be least interested in determining A an estimate of when the matter will be resolved B. The period in which the underlying cause of the litigation occurred C. The probability of an unfavorable outcome D. An estimate of the potential loss. 20. When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should A. insist that the client issued revised financial statements B. inform the audit committee that the report cannot be relied on C. Take no action regarding the event D. Inform the appropriate authorities that the report cannot be relied on 21. Sharp, CPA, was engaged by Peters and Sons, a partnership, to give an opinion on the financial statements that were to be submitted to several prospective partners as a part of planned expansion of the firm. Sharp's fee was fixed on a peer diem basis. After a period of intensive work, Sharp completed about half of the necessary field work. Then, because of unanticipated demands on his time by other clients, Sharp was forced to abandon the work. The planned expansion of the firm failed to materialize because of prospective partners lost interest when the audit report was not promptly available. Sharp offered to complete the task at a later date. This offer was refused. Peters & Sons suffered damages of $400,000 as a result. Under the circumstances, what is the probable outcome of a lawsuit between Sharp and Peters & Sons ? A. Sharp will be compensated for the reasonable value of the services actually performed. B. Peters & Sons will recover damages for breach of contract. & Sons will recover both punitive damages and damages for breach of contract D. Neither Sharp nor Peters & Sons will recover against the other. 22. Martin Corporation orally engaged Humm&Drawson to audit its year-end financial statements. The engagement was to be completed within 2 months after the close of Martin's fiscal year for a fixed fee of $75,000. Under these circumstances is assumed by Humm &Dawson? A. None. The contract is unenforceable because it is not in writing. 8. An implied promise to exercise reasonable standards for competence and care. C.An implied obligation to take extraordinary steps to discover all defalcations. D. The obligation of an insurer of its work, which is liable without fault
