Question 1

To prevail under Section 11 of the 1933 Securities Act,the plaintiff must prove:

Accepted Answer

A)  the registration statement contained a material misstatement or omission; and the plaintiff lost money. 
B)  the registration statement contained a material misstatement or omission; the auditor acted knowingly or recklessly; and the plaintiff lost money. 
C)  the registration statement contained a material misstatement or omission; the auditor intended to deceive; and the plaintiff lost money. 
D)  the registration statement contained a material misstatement or omission; the auditor acted with scienter; and the plaintiff lost money. 
A)  the registration statement contained a material misstatement or omission; and the plaintiff lost money. 
B)  the registration statement contained a material misstatement or omission; the auditor acted knowingly or recklessly; and the plaintiff lost money. 
C)  the registration statement contained a material misstatement or omission; the auditor intended to deceive; and the plaintiff lost money. 
D)  the registration statement contained a material misstatement or omission; the auditor acted with scienter; and the plaintiff lost money. A

Question 2

The Securities and Exchange Commission (SEC)has proposed a set of rules that would ultimately require U.S.companies to use international financial reporting standards. Why?

Accepted Answer

A)  With global business there is a need for consistency 
B)  More than 100 countries already use it. 
C)  foreign companies would be more willing to invest in the United States if they could use international accounting rules. 
D)  All of these answers are true 
A)  With global business there is a need for consistency 
B)  More than 100 countries already use it. 
C)  foreign companies would be more willing to invest in the United States if they could use international accounting rules. 
D)  All of these answers are true D

Question 3

To verify transactions,accountants use two mirror-image processes: vouching and tracing.Tracing is a process where the accountant begins with an item of original data and checks out all the activity that has occurred from beginning to end to make sure it has been properly recorded throughout the bookkeeping process.

Accepted Answer

A) True 
 B)False  True

Question 4

Criminal liability for accountants:

Accepted Answer

A)  is not an option under securities law; there is only civil liability. 
B)  is possible under the Securities Act of 1933,the 1934 Act,state securities laws,and the Internal Revenue Code. 
C)  may result in fines but not imprisonment from violation of the federal securities laws. 
D)  will result from violation of the accountant-client privilege under federal law. 
A)  is not an option under securities law; there is only civil liability. 
B)  is possible under the Securities Act of 1933,the 1934 Act,state securities laws,and the Internal Revenue Code. 
C)  may result in fines but not imprisonment from violation of the federal securities laws. 
D)  will result from violation of the accountant-client privilege under federal law.

Question 5

An engagement letter is a written contract:

Accepted Answer

A)  between an accountant and client. 
B)  in anticipation of marriage. 
C)  between a corporation and the AICPA. 
D)  intended to create a fiduciary duty of an accountant to his client. 
A)  between an accountant and client. 
B)  in anticipation of marriage. 
C)  between a corporation and the AICPA. 
D)  intended to create a fiduciary duty of an accountant to his client.

Question 6

Why did Congress pass the Sarbanes Oxley Act?

Accepted Answer

A)  Accounting rules were too restrictive and complicated to follow. 
B)  Because the Big 4 were spending too much money on litigation 
C)  In response to Enron 
D)  To combine consulting service and auditing services into one streamlined service package. 
A)  Accounting rules were too restrictive and complicated to follow. 
B)  Because the Big 4 were spending too much money on litigation 
C)  In response to Enron 
D)  To combine consulting service and auditing services into one streamlined service package.

Question 7

A CPA's duty of care to a client most likely will be breached when the CPA:

Accepted Answer

A)  gives a client an oral report instead of a written report. 
B)  gives a client incorrect advice based on an honest error in judgment. 
C)  fails to give tax advice that would save the client money. 
D)  fails to follow generally accepted auditing standards (GAAS). 
A)  gives a client an oral report instead of a written report. 
B)  gives a client incorrect advice based on an honest error in judgment. 
C)  fails to give tax advice that would save the client money. 
D)  fails to follow generally accepted auditing standards (GAAS).

Question 8

Under the amended Securities Exchange Act of 1934,accountants are liable jointly and severally whether or not they knew they were violating the law.

Accepted Answer

A) True 
 B)False

Question 9

GBH,an accounting firm,was hired to prepare financial statements for E-treme.
-Great State Bank has asked to see GBH's working papers.Great State Bank is thinking about extending a $4 million line of credit to E-treme.GBH:

Accepted Answer

A)  can show the bank the working papers because Great State Bank has a proper purpose. 
B)  can show the bank the working papers because Great State Bank is a known third party. 
C)  cannot show the bank the working papers under any circumstances as they are not finalized. 
D)  cannot show the bank the working papers unless E-treme gives permission. 
A)  can show the bank the working papers because Great State Bank has a proper purpose. 
B)  can show the bank the working papers because Great State Bank is a known third party. 
C)  cannot show the bank the working papers under any circumstances as they are not finalized. 
D)  cannot show the bank the working papers unless E-treme gives permission.

Question 10

In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?

Accepted Answer

A)  A criminal case. 
B)  A case involving the SEC. 
C)  A case concerning the preparation of tax returns. 
D)  A civil fraud case involving the IRS. 
A)  A criminal case. 
B)  A case involving the SEC. 
C)  A case concerning the preparation of tax returns. 
D)  A civil fraud case involving the IRS.

Question 11

Which of the following opinions indicates that the company's financial statements fairly present its financial condition according to GAAP?

Accepted Answer

A)  Qualified opinion. 
B)  Adverse opinion. 
C)  Disclaimer of opinion. 
D)  Unqualified opinion. 
A)  Qualified opinion. 
B)  Adverse opinion. 
C)  Disclaimer of opinion. 
D)  Unqualified opinion.

Question 12

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank.
-Under the Ultramares doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

Accepted Answer

A) True 
 B)False

Question 13

An accountant is liable for fraud to:

Accepted Answer

A)  only her client. 
B)  only her client and any known user of her information. 
C)  any foreseeable user of her work product who justifiably relied on it. 
D)  any third party who used the information contained in her work product. 
A)  only her client. 
B)  only her client and any known user of her information. 
C)  any foreseeable user of her work product who justifiably relied on it. 
D)  any third party who used the information contained in her work product.

Question 14

John is auditing MegaCorp.He finds an accounts payable for 1,000 reams of photocopy paper.He checks to make sure the paper actually arrived and that the receiving department had signed and dated the invoice.He also checks the original purchase order to make sure the purchase was properly authorized.This illustrates:

Accepted Answer

A)  tracing. 
B)  vouching. 
C)  following. 
D)  monitoring. 
A)  tracing. 
B)  vouching. 
C)  following. 
D)  monitoring.

Question 15

Fast Auditors prepared audited financial statements for Mega Company's registration statement in compliance with the 1933 Securities Act.John bought stock in Mega Company.It was discovered that the financial statements prepared for the registration statement contained some important omissions.John sued Fast Auditors to recover his investment when Mega Company turned out to be a bad investment.What must John prove to recover from Fast Auditors?

Accepted Answer

To prevail under Section 11 of

Question 16

Discuss how SEC rules affect the legal and the ethical relationship between accountants and the companies they audit.

Accepted Answer

The SEC rules require accountants to mai

Question 17

Discuss the advantages and disadvantages of using IFRS.

Accepted Answer

As businesses become more international,

Question 18

Generally accepted accounting principles are the rules for preparing financial statements.

Accepted Answer

A) True 
 B)False

Question 19

The accounting firm of Gray & Co.did accounting work for both Regional Bank and Carter Electronics.Without Carter's knowledge or approval,Gray & Co.discussed Carter's financial problems with Regional Bank.Gray & Co.:

Accepted Answer

A)  breached a legal obligation to keep all client information confidential. 
B)  breached a moral,but not a legal,obligation of confidentiality. 
C)  did not breach any obligations to its clients. 
D)  acted properly because it was protecting its client,Regional Bank,from possibly making an unwise loan to Carter Electronics. 
A)  breached a legal obligation to keep all client information confidential. 
B)  breached a moral,but not a legal,obligation of confidentiality. 
C)  did not breach any obligations to its clients. 
D)  acted properly because it was protecting its client,Regional Bank,from possibly making an unwise loan to Carter Electronics.

Question 20

An auditor suspects its client is committing illegal acts that will have a material impact on its financial statements.What is the auditor legally required to do and under what circumstances would the auditor directly notify the SEC?

Accepted Answer

Under Section 10A of the 1934 Act,the au

Exam 24: Accountants' Liability

To prevail under Section 11 of the 1933 Securities Act,the plaintiff must prove:

The Securities and Exchange Commission (SEC)has proposed a set of rules that would ultimately require U.S.companies to use international financial reporting standards. Why?

Criminal liability for accountants:

An engagement letter is a written contract:

Why did Congress pass the Sarbanes Oxley Act?

A CPA's duty of care to a client most likely will be breached when the CPA:

Under the amended Securities Exchange Act of 1934,accountants are liable jointly and severally whether or not they knew they were violating the law.

GBH,an accounting firm,was hired to prepare financial statements for E-treme. -Great State Bank has asked to see GBH's working papers.Great State Bank is thinking about extending a $4 million line of credit to E-treme.GBH:

In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?

Which of the following opinions indicates that the company's financial statements fairly present its financial condition according to GAAP?

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank. -Under the Ultramares doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

An accountant is liable for fraud to:

Discuss how SEC rules affect the legal and the ethical relationship between accountants and the companies they audit.

Discuss the advantages and disadvantages of using IFRS.

Generally accepted accounting principles are the rules for preparing financial statements.

The accounting firm of Gray & Co.did accounting work for both Regional Bank and Carter Electronics.Without Carter's knowledge or approval,Gray & Co.discussed Carter's financial problems with Regional Bank.Gray & Co.:

An auditor suspects its client is committing illegal acts that will have a material impact on its financial statements.What is the auditor legally required to do and under what circumstances would the auditor directly notify the SEC?

Introduction to Law

Business Ethics and Social Responsibility

Courts,Litigation and Alterntive Dispute Resolution

Constitutional, Statutory, Administrative, and Common Law

Intentional Torts and Business Torts

Negligence and Strict Liability

Crime

International Law

Introduction to Contracts

Contract Impediments

Conclusion to Contracts

Practical Contracts

Introduction to Sales

Negotiable Instruments

Secured Transactions

Bankruptcy

Agency Law

Employment Law

Employment Discrimination

Labor Law

Starting a Business: Llcs and Other Option

Life and Death of a Corporation

Government Regulation: Securities and Antitrust

Consumer Law

Environmental Law

Cyberlaw

Intellectual Property

Real Property and Tenant: Landlord Law

Personal Property and Bailment

Estate Planning

Insurance

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