11. In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:
    1. is unable to review the other CPA's audit programs and working papers.
    2. is satisfied as to the other CPA's independence and professional reputation.
    3. issues an unqualified opinion on the consolidated financial statements.
    4. learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.

12. When performing an audit, a CPA:
    1. must strictly adhere to generally accepted accounting principles.
    2. must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.
    3. is strictly liable for failing to discover client fraud.
    4. is not liable under any legal standard unless the CPA commits gross negligence or intentionally disregards generally accepted auditing standards.

13. Why would a lawyer file a lawsuit against an auditor that the lawyer does not expect to win?
    1. Because even a low probability of success is usually enough to motivate a lawyer.
    2. Because its cheaper for the auditor to settle the lawsuit than go through the entire litigation process to prove their innocence.
    3. Because the lawyers are bound by ethics to take on any case someone brings to them.
    4. Because lawyers are optimists.

14. Which of the following actions by an audit client is most likely to get its auditor sued?
    1. An audit client intentionally understates their sales return reserve to meet an earnings target.
    2. An audit client does not report an increase in earnings for the first time in several years.
    3. An audit client’s CEO makes derogatory racial comments regarding some employees.
    4. An audit client’s stops spending on advertising near year end to meet an earnings target.

15. In order to obtain a loan from a bank, Firm A obtained an audit from a CPA firm. The bank loaned money to Firm A as a result of relying on its audited financial statements and the CPA's unqualified opinion. After the loan was made, Firm A was unable to make an interest payment and it was discovered that Firm A’s sales had been materially overstated. Although the bank is unable to prove that the CPA firm had any knowledge that sales were overstated, the bank believes that the CPA firm failed to exercise the knowledge, skill, and judgment commonly possessed by CPAs in the locality. Additionally, the bank is not able to prove that the CPA firm either showed a reckless disregard for the truth or intentionally deceived it. Which of the following causes of legal action would provide the bank with proper basis upon which it would most likely prevail?
    1. Gross negligence.
    2. Statutory liability.
    3. Fraud.
    4. Negligence.