Exam 44: Accountants Legal Liability

In recent years, more and more courts have followed the Ultramares doctrine in deciding cases.

An accountant who willfully violates Section 11 of the 1933 Securities Act will be subject to criminal liability.

The Public Company Accounting Oversight Board can impose sanctions in its disciplinary proceedings, including:

Section 11 of the 1933 Securities Act imposes liability upon an accountant for negligence in the conduct of an audit.

A tax client wishing to defer income he earned this year asks his accountant to misstate information on his tax return. If the accountant does so, she may be subject to fines and up to five years in prison.

Criminal sanctions for accountants are limited to punitive fines.

The client is generally held to be the owner of the working papers the accountant uses in performing an audit.

An accountant's legal liability is imposed both by the common law at the state level and by securities laws at the federal level.

Tom decides to invest in the stock of Triad Television after he reads Edgar's audit, which includes a statement, known by Edgar to be false, as to the value of numerous worthless securities held as corporate assets. If Tom sues Edgar in a state using the broadest test for determining an accountant's liability for negligence to third parties, he will be entitled to:

Baxsen, Inc. wanted to acquire the common stock of the Acme Corporation and hired Clark to audit the financial statements of Acme. Clark failed to discover a large embezzlement by Acme's chief financial officer. In a common law action by Baxsen against Clark, Baxsen must at a minimum prove:

Which of the following can be the basis for an accountant's liability under state law?

An implied agreement in the contractual relationship is the agreement by the accountant to act in a competent and professional manner.

Which of the following could give rise to an accountant's criminal liability?

An accountant's liability under the federal securities laws is basically the same as the liability at common law.

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Sara holds 1,000 shares of stock in B B & B, Inc., which she purchased, based upon the financial statements that Adam had prepared. She now realizes that the statements were false and wants to sue Adam for common law fraud. What is Adam's best defense?

An accountant has a duty to comply with court orders, client requests, and Generally Accepted Auditing Standards with regards to disclosure of a client's confidential information.

In most statutes granting an accountant-client privilege, it belongs to the client and not to the accountant.

An accountant who commits fraud may be held liable for compensatory, but not punitive, damages.

An accountant who acts in a reasonably competent and professional manner is an insurer of the accuracy of her report.