Question 1

Which of the following statements is true of accountants' liability to clients in breach of contract suits?

Accepted Answer

A)  Courts consider damages to include expenses incurred by the client in securing another accountant to perform the needed services. 
B)  Courts usually award punitive damages if the auditor provides a disclaimer of opinion after auditing clients' financial statements. 
C)  An accountant who fails to perform the terms specified in an engagement can be sued for damages only if the accountant displayed reckless regard. 
D)  Penalties incurred by the client for missed deadlines or lost opportunities are not considered by courts while awarding damages. 
A)  Courts consider damages to include expenses incurred by the client in securing another accountant to perform the needed services. 
B)  Courts usually award punitive damages if the auditor provides a disclaimer of opinion after auditing clients' financial statements. 
C)  An accountant who fails to perform the terms specified in an engagement can be sued for damages only if the accountant displayed reckless regard. 
D)  Penalties incurred by the client for missed deadlines or lost opportunities are not considered by courts while awarding damages.

Question 2

The plaintiff must prove privity of contract to recover monetary damages under Section 11(a)of the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 3

________ is a rule that limits a defendant's accountability to his or her equivalent degree of fault.

Accepted Answer

A)  Privity of contract 
B)  Due diligence defense 
C)  Proportionate liability 
D)  The Ultramares doctrine 
A)  Privity of contract 
B)  Due diligence defense 
C)  Proportionate liability 
D)  The Ultramares doctrine

Question 4

A(n)________ is an auditor's opinion that states that the financial statements are fairly represented except for,or subject to,a departure from GAAPs,a change in accounting principles,or a material uncertainty.

Accepted Answer

A)  unqualified opinion 
B)  qualified opinion 
C)  adverse opinion 
D)  disclaimer of opinion 
A)  unqualified opinion 
B)  qualified opinion 
C)  adverse opinion 
D)  disclaimer of opinion

Question 5

________ prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security.

Accepted Answer

A)  Section 11(a) of the Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Section 10(b) of the Securities Exchange Act of 1934 
D)  Section 15 of the Securities Act of 1933 
A)  Section 11(a) of the Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Section 10(b) of the Securities Exchange Act of 1934 
D)  Section 15 of the Securities Act of 1933

Question 6

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

Accepted Answer

A)  Section 2(b) of the Robinson-Patman Act 
B)  Section 5 of the Federal Trade Commission 
C)  Section 552 of the Restatement (Second) of Torts 
D)  Section 16 of the Clayton Act 
A)  Section 2(b) of the Robinson-Patman Act 
B)  Section 5 of the Federal Trade Commission 
C)  Section 552 of the Restatement (Second) of Torts 
D)  Section 16 of the Clayton Act

Question 7

Accountants cannot be held liable for their negligence in preparing unaudited financial statements.

Accepted Answer

A) True 
 B)False

Question 8

All the members of an audit committee must be financial experts by either education or experience.

Accepted Answer

A) True 
 B)False

Question 9

Third parties usually cannot sue accountants for breach of contract.

Accepted Answer

A) True 
 B)False

Question 10

________ are standards for the preparation and presentation of financial statements.

Accepted Answer

A)  ISO 1:2002 
B)  General technical delivery conditions 
C)  Generally accepted accounting principles 
D)  Generally accepted auditing standards 
A)  ISO 1:2002 
B)  General technical delivery conditions 
C)  Generally accepted accounting principles 
D)  Generally accepted auditing standards

Question 11

Which of the following provides the broadest standard for holding accountants liable to third parties for negligence?

Accepted Answer

A)  due diligence defense 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  exclusionary rule 
A)  due diligence defense 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  exclusionary rule

Question 12

The ________ is a state law that provides that an accountant's work papers cannot be used against a client in a court action.

Accepted Answer

A)  work product immunity 
B)  accountant-client privilege 
C)  fair use doctrine 
D)  Noerr Doctrine 
A)  work product immunity 
B)  accountant-client privilege 
C)  fair use doctrine 
D)  Noerr Doctrine

Question 13

How did the Private Securities Litigation Reform Act of 1995 change the liability of accountants and other securities professionals?

Accepted Answer

The Private Securities Litigation Reform

Question 14

Which of the following statements is true of Section 32(a)of the Securities Exchange Act of 1934?

Accepted Answer

A)  This rule applies only to auditors. 
B)  Insider trading falls within the purview of this section. 
C)  A person guilty of violating Section 32(a) will be imprisoned regardless of his or her knowledge of the regulation violated. 
D)  The SEC files criminal lawsuits against those willfully violated federal securities laws. 
A)  This rule applies only to auditors. 
B)  Insider trading falls within the purview of this section. 
C)  A person guilty of violating Section 32(a) will be imprisoned regardless of his or her knowledge of the regulation violated. 
D)  The SEC files criminal lawsuits against those willfully violated federal securities laws.

Question 15

What are the advantages of organizing an accounting firm as a limited liability partnership (LLP)?

Accepted Answer

In a limited liability partnership,all t

Question 16

Martha is an accountant who helped Oltup,Inc.to file registration statements with the SEC.Oltup,Inc.then sold some of its securities.Sandra,who purchased the securities,finds that there are quite a few misleading statements,and she files a lawsuit under Section 18(a)of the Securities Exchange Act of 1934.Which of the following statements is true of this scenario?

Accepted Answer

A)  Martha can defeat liability if she can show that Sandra was aware of the misleading statements when the securities were sold. 
B)  Martha is liable even if she can show that she acted in good faith. 
C)  Sandra can recover damages if she can prove that Martha acted negligently. 
D)  Sandra can recover damages if she can prove that she was in a privity of contract relationship with Martha. 
A)  Martha can defeat liability if she can show that Sandra was aware of the misleading statements when the securities were sold. 
B)  Martha is liable even if she can show that she acted in good faith. 
C)  Sandra can recover damages if she can prove that Martha acted negligently. 
D)  Sandra can recover damages if she can prove that she was in a privity of contract relationship with Martha.

Question 17

Most public accounting firms in the United States are organized and operated as ________.

Accepted Answer

A)  limited liability partnerships 
B)  corporations 
C)  cooperatives 
D)  sole traders 
A)  limited liability partnerships 
B)  corporations 
C)  cooperatives 
D)  sole traders

Question 18

The lead audit partner and reviewing partner must rotate off an audit every five years.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following opinions is necessary for a company to avoid unfavorable repercussions?

Accepted Answer

A)  an adverse opinion 
B)  a qualified opinion 
C)  a disclaimer of opinion 
D)  an unqualified opinion 
A)  an adverse opinion 
B)  a qualified opinion 
C)  a disclaimer of opinion 
D)  an unqualified opinion

Question 20

Only purchasers and sellers of securities can sue under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934.

Accepted Answer

A) True 
 B)False

Exam 40: Accountants' Duties and Liability

Which of the following statements is true of accountants' liability to clients in breach of contract suits?

The plaintiff must prove privity of contract to recover monetary damages under Section 11(a)of the Securities Act of 1933.

________ is a rule that limits a defendant's accountability to his or her equivalent degree of fault.

A(n)________ is an auditor's opinion that states that the financial statements are fairly represented except for,or subject to,a departure from GAAPs,a change in accounting principles,or a material uncertainty.

________ prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security.

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

Accountants cannot be held liable for their negligence in preparing unaudited financial statements.

All the members of an audit committee must be financial experts by either education or experience.

Third parties usually cannot sue accountants for breach of contract.

________ are standards for the preparation and presentation of financial statements.

Which of the following provides the broadest standard for holding accountants liable to third parties for negligence?

The ________ is a state law that provides that an accountant's work papers cannot be used against a client in a court action.

How did the Private Securities Litigation Reform Act of 1995 change the liability of accountants and other securities professionals?

Which of the following statements is true of Section 32(a)of the Securities Exchange Act of 1934?

What are the advantages of organizing an accounting firm as a limited liability partnership (LLP)?

Most public accounting firms in the United States are organized and operated as ________.

The lead audit partner and reviewing partner must rotate off an audit every five years.

Which of the following opinions is necessary for a company to avoid unfavorable repercussions?

Only purchasers and sellers of securities can sue under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934.

Legal Heritage and the Digital Age

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Intentional Torts and Negligence

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Ethics and Social Responsibility of Business

Nature of Traditional and E-Contracts

Agreement and Consideration

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Genuineness of Assent and Statute of Frauds

Third-Party Rights and Discharge

Breach of Contract and Remedies

Digital Law and E-Commerce

Formation of Sales and Lease Contracts

Title to Goods and Risk of Loss

Remedies for Breach of Sales and Lease Contracts

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Creation and Transfer of Negotiable Instruments

Holder in Due Course and Liability of Parties

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