 Hello and welcome to this session. This is Professor Farhad and this session we would look at previously used CPA questions. Those were used by the AI CPA on the actual CPA exam. This means those are the real deal. Those are actual questions. Now in the future they may appear word for word or they may appear differently but I could assure you the concept and the way they test you will appear again on the exam and this is the regulation exam. As always I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1600 plus accounting, auditing, tax and finance lectures. This is a list of all the courses that I cover including many hundreds of CPA questions. On my website you will find additional information about my lectures such as PowerPoint slides, notes, true, false, multiple choice. If you're studying for the CPA exam 2000 plus CPA questions. So let's take a look at this first question. As I always I would mention what on my lectures on which chapter and course you will find the information and notice this question is an auditing and attestation and you might be saying what does auditing and attestation has to do with the regulation section. Well when it comes to the tax preparer the CPA liability well you would learn about CPA professional liability and auditing as well so that's why this topic is covered in auditing. So let's take a look at the first question. If a CPA recklessly depart from the standard of due care when conducting an audit the CPA will be liable to third party who are unknown to the CPA under what law. Now you have to understand those laws in other words when you walk into the exam you have to know under which law the CPA is liable and I'm going to show you when I when I when I cover this on my on my YouTube so this is only one screenshot from a you know six minute and 28 second session just real quick three level under the law an accountant will be here we're talking about auditors but here we're talking about the CPA misconduct okay first is you could be under ordinary negligence you could have gross negligence or you could have fraud first first of all you need to understand what's the difference between one and two and three which is fraud one and two don't have an intent three you have an intent so that's the first thing for to have to to be liable under ordinary negligence yeah you just simply have to failure to exercise is a reasonable level of care that caused the damage so you did not perform do care you did not do your job as you're supposed to do you were careless but again you have no intent to to deceive if your misconduct is considered gross nugget negligence then failure to exercise even the minimal level of care so it's not only then do the reasonable level of care even the minimum you are reckless you had reckless disregard so really really reckless here okay to be under gross negligence and the keyword is reckless and again there's no intent there's no intent and fraud well guess what fraud you have various factors for fraud first there there should be a material misrepresentation okay it means you misrepresented a serious amount of money that's what material misrepresentation is material misrepresentation two you had the intent intent here is sinister you act with intent act with sinister you have to have this also also the plaintiff has have to justify that they relied on you so there's a justification the plaintiff must prove so they must prove they did they did and they must prove damages which is damages easy to to to show so you must prove four things there was material misrepresentation one damages two if you want to take those take those notes three the the plaintiff must prove and act with sinister is intent you have to show that there was an intent those are the four elements of fraud four elements of fraud so have a look at those big picture we can go back and try to answer the question that's let me clear from the notes here because I have a lot of notes now so if you are giving this question and you see the word reckless recklessly depart from do care I would say if you remember you are reckless it's really it's not good you're really negligent okay so it cannot be negligent because negligent is you know like a minor infraction when it comes to reckless again the word that comes with it is gross negligence gross negligence so once you see the word reckless and remember let me show you when we talked about gross negligence we say you were reckless disregard so reckless and gross negligence they go together and basically you have to memorize those you have to know you have to know those rules because you can answer a lot of easy questions and get some easy points out of the way by remembering those rules okay which of the following defenses is likely to be successful in a suit alleging negligence again here what they're asking you is the CPA is being sued for negligence well let's see what happened you're negligent if you did not exercise level of care you know the minimum level of care basically or some sort of a level of care like but you were careless basically okay so what defense you will have if you are accused of being careless well guess what if I'm accused of being careless my defense is I did my job I perform do care that's what I did I did my job okay intent is not an issue lack of mental capacity is not an issue ignorance of the law well stability is never a defense so you cannot say I was ignorant so that's definitely out so all you can do is if you are if you are being sued for negligence what they're trying to say is you did not perform your job and you'd say no I did I perform my job in a professional do care I did my job that's all you have to do and if you can prove this then you're no longer negligence okay negligent okay number three which of the following pairs of element must client proof to prove account to accountant libel for common law fraud now here we're talking about fraud remember the four the four rules of fraud you have to have the intent which is sinister you have to show the damages intent to deceive and material misrepresentation for that matter let's look at one a i'm sorry a material misrepresentation that's good breach of contract that's not we did not talk about breach of contract with fraud okay you don't it doesn't have to be there so a is out because breach of contract is not an element of fraud freedom from contributory negligence and loss so you did not contribute to the negligence and loss those are not elements of fraud that's out to see sinister which is intent to commit fraud yes and justifiable reliance yes the client has to prove that they justify that they that they relied on whatever you're providing them the financial statements for that matter they relied and they incur the loss okay that's the third element which it's not here but definitely intent which is sinister and justifiable reliance are peers of elements so this looks like a good answer but let's look at the intent well this is good to deceive while that's the same thing as sinister and privity you don't have to prove privity you don't have to be you don't have to have a contract with the with the cpa okay so any third party can sue under fraud so c is the is the answer again those questions if you notice they're kind of they're from auditing and attestation and sometime you would learn them under business law because i don't really teach business law i'm not a lawyer and i haven't tried to teach business law yet but the point is you have to know those rules okay and luckily i do cover it and auditing and attestation so you have to be very familiar and comfortable so you can answer these easy questions easy points okay to which of the following parties will the cpa be liable of the cpa fraudulently we have fraud here issued an unqualified opinion on a corporation's materially misstated financial statements now you're committing a fraud they're telling you there's a fraud the question is who can sue you if you commit a fraud and guess what the short answer is anyone okay so who can sue you corporate shareholders can sue you because they're owners corporate bondholders they can sue you they are also they are also affected so a is the answer both shareholders and bondholders once again whether they have to prove they have to prove that you have the intent to deceive which is the hardest to prove you know yet you you intentionally try to deceive them they have to prove that they justifiably relied on your on your statement well that's not too bad they can easily kind of uh uh show this you know they gave you the loan they justify on the statement they have to show damages that's easy if they lost money and it has to be material material that's they already told us here materially misstated so it's it's easy okay number five which of the following transaction correctly illustrate the doctrine of substantial performance what is substantial performance it means did you do your job fully all the way till the end this is basically what it is and this is more like a business law concept rather than an accounting concept so it's like a business law concept okay so did you do your job all the way till the end the illustrate the doctrine of substantial substantial performance okay hey Blair ordered a dozen of blue chairs from Kyle Kyle deliver a dozen of red chairs dozen red chairs well well this is a substantial performance well you did send me 12 chairs but it's not my 12th chair so you did not really substantially perform because those are those are not the chairs that I ordered so here what we have is a breach basically in a sort of breach of contract you did not really conform to the contract because I want 12 blue chairs so you did not really substantially perform what you're supposed to perform so a is out Leslie painted an entire room but failed to put an electric electrical outlet covers back on well I hope I hope you know what what electrical outlets are basically when you're painting you remove the the electrical outlet so you can paint so no no paint no paint is is no paint is painted on those electric outlet because you're trying to paint in corners so basically you painted but this is basically I would say a small a minor issue in my opinion a material issue I would say B is a good candidate because you could either put those basically you need two screws you could put those back on or you may ask the the painter to come back and put them but look B looks like you substantially perform but let's hold on that okay a contract C a contract required hairstyling to be done to Toby satisfaction but Toby in good faith dissatisfied with the completed result well guess what you're not satisfied they did not really perform and they're saying here you didn't you're not trying to commit any fraud Toby was in good faith so that's not substantial performance a dentist competently completed the extraction of Lee's tooth but mistakenly pulled the wrong one yike that they substantially performed can the dentist said look I'm done I'm supposed to pull a teeth out and I did pull your teeth and that's it we're done although it's the wrong one they can't say that they can't say that okay they're gonna be in trouble big time okay so these out so as we expected B is the right answer I'm not really a handy person I can tell you I can put electrical outlet back on okay so it's not but it's not bad you can do it that's a good one all right so in the next session as always I will work additional CPA questions I'm gonna remind you to visit my website on my website you will find additional resources if you're studying for your CPA exam including hundreds of CPA questions lectures notes PowerPoint slides you're gonna study for your CPA once do it properly subscribe it's an investment in your career move on with your life good luck