Question 1

Audit working papers would include which of the following?

Accepted Answer

A)  Records of accounting and auditing procedures and tests performed. 
B)  Engagement letters. 
C)  A collection of IRS rulings related to auditing in general. 
D)  Accountant fees accrued for the year from all accounts. 
A)  Records of accounting and auditing procedures and tests performed. 
B)  Engagement letters. 
C)  A collection of IRS rulings related to auditing in general. 
D)  Accountant fees accrued for the year from all accounts. A

Question 2

An accountant who contractually promises to conduct an audit to detect possible embezzlement is under a contractual obligation to provide an expanded audit beyond generally accepted auditing standards.

Accepted Answer

A) True 
 B)False  True

Question 3

Matty is an employee of ValCom but doe not own any ValCom stock. At her five year employment anniversary, she decides to buy 50 shares of a new issue of company stock as a savings plan and afterward receives the signed registration statement.  Because of her employment at ValCom, she recognizes that the statement contains an untrue material fact. Can she sue the auditor?

Accepted Answer

A)  Yes, under Section 11, proof of reliance is usually not required. 
B)  Yes, if she can prove she would not have bought the stock otherwise. 
C)  No, because she did not rely on the statement. 
D)  No, because there is no privity between Matty and the auditor. 
A)  Yes, under Section 11, proof of reliance is usually not required. 
B)  Yes, if she can prove she would not have bought the stock otherwise. 
C)  No, because she did not rely on the statement. 
D)  No, because there is no privity between Matty and the auditor. A

Question 4

While auditing the books of PureCare Co., Rizza becomes aware of information indicating an illegal act within the company. Rizza must:

Accepted Answer

A)  determine whether an illegal act occurred and, if it did, the possible effect on PureCare's financial statements. 
B)  notify the SEC immediately so it can conduct an investigation. 
C)  resign as auditor immediately to avoid criminal liability. 
D)  notify local law enforcement and remove himself from any association with PureCare . 
A)  determine whether an illegal act occurred and, if it did, the possible effect on PureCare's financial statements. 
B)  notify the SEC immediately so it can conduct an investigation. 
C)  resign as auditor immediately to avoid criminal liability. 
D)  notify local law enforcement and remove himself from any association with PureCare .

Question 5

Most courts allow an accountant to raise the defense of the plaintiff's contributory or comparative negligence.

Accepted Answer

A) True 
 B)False

Question 6

A group of investors brings a class action lawsuit against the Z & R Accounting Firm under Section 10b and Rule 10b-5 of the 1934 Securities Act. Angela, an accountant with the firm, had done an audit of the Pennymart Inc. books. The audit failed to disclose that Orrin, the president of Pennymart, had stolen large amounts of cash from the firm. Pennymart eventually filed for bankruptcy as a result of the thefts. What is the likely result of the suit?

Accepted Answer

In general, accountants may be held civi

Question 7

In which of the following situations would an accountant be subject to criminal liability?

Accepted Answer

A)  Where the accountant negligently performed an audit. 
B)  Where the accountant willfully omitted a material fact on a securities registration statement. 
C)  Where the accountant refused to turn over working papers to a client. 
D)  Where the accountant willfully breached a contract. 
A)  Where the accountant negligently performed an audit. 
B)  Where the accountant willfully omitted a material fact on a securities registration statement. 
C)  Where the accountant refused to turn over working papers to a client. 
D)  Where the accountant willfully breached a contract.

Question 8

An accountant who willfully violates Section 11 of the Securities Act of 1933 is subject to fines of up to $100,000 or imprisonment of not more than three years, or both.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  Contract law and negligence, but not criminal law. 
B)  Tort law, contract law, and criminal law. 
C)  Negligence, criminal law, and strict liability. 
D)  Intentional torts and negligence, but not contract law. 
A)  Contract law and negligence, but not criminal law. 
B)  Tort law, contract law, and criminal law. 
C)  Negligence, criminal law, and strict liability. 
D)  Intentional torts and negligence, but not contract law.

Question 10

What is the basis of an accountant's potential criminal liability in rendering professional services?

Accepted Answer

An accountant's potential crim

Question 11

In which of the following types of cases can issues of accountant-client confidentiality arise?

Accepted Answer

A)  Civil litigation. 
B)  Criminal cases. 
C)  Tax cases. 
D)  All of these are situations where it can arise. 
A)  Civil litigation. 
B)  Criminal cases. 
C)  Tax cases. 
D)  All of these are situations where it can arise.

Question 12

To lessen his tax liability, a client asks his accountant to misstate information on his tax return. If the accountant does so, she may be subject to fines and up to three years in prison.

Accepted Answer

A) True 
 B)False

Question 13

The Private Securities Litigation Reform Act of 1995 provides that an auditor can be held liable in a private action for any finding, conclusion, or statement expressed in the report the Act requires the auditor to make to the SEC.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is correct with regard to an accountant's contractual liability?

Accepted Answer

A)  An accountant is bound to perform all the duties she explicitly agrees to perform. 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner. 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary. 
D)  All of these are correct. 
A)  An accountant is bound to perform all the duties she explicitly agrees to perform. 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner. 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary. 
D)  All of these are correct.

Question 15

When can an accountant release audit working papers?

Accepted Answer

A)  Only when a client consents. 
B)  Only w hen a court orders disclosure. 
C)  At any time at the discretion of the accountant. 
D)  Either when a client consents or when a court orders disclosure. 
A)  Only when a client consents. 
B)  Only w hen a court orders disclosure. 
C)  At any time at the discretion of the accountant. 
D)  Either when a client consents or when a court orders disclosure.

Question 16

Under the Securities Exchange Act of 1934, an accountant's liability for false or misleading statements is based on a good faith negligence standard.

Accepted Answer

A) True 
 B)False

Question 17

An accountant who willfully violates Section 11 of the 1933 Securities Act is subject only to civil liability.

Accepted Answer

A) True 
 B)False

Question 18

Accountants' liability under the 1933 and 1934 Securities Acts is more extensive and has fewer limitations than liability under the common law.

Accepted Answer

A) True 
 B)False

Question 19

List the services that the Sarbanes-Oxley Act prohibits accounting firms from performing for audit clients.

Accepted Answer

In order to make auditors more independe

Question 20

Which of the following is correct with respect to an accountant's working papers?

Accepted Answer

A)  The client is held to be the owner of an accountant's working papers. 
B)  An accountant must surrender his working papers to his client if the client so requests. 
C)  An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D)  All of these are correct. 
A)  The client is held to be the owner of an accountant's working papers. 
B)  An accountant must surrender his working papers to his client if the client so requests. 
C)  An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D)  All of these are correct.

Exam 43: Accountants Legal Liability

Audit working papers would include which of the following?

An accountant who contractually promises to conduct an audit to detect possible embezzlement is under a contractual obligation to provide an expanded audit beyond generally accepted auditing standards.

While auditing the books of PureCare Co., Rizza becomes aware of information indicating an illegal act within the company. Rizza must:

Most courts allow an accountant to raise the defense of the plaintiff's contributory or comparative negligence.

In which of the following situations would an accountant be subject to criminal liability?

An accountant who willfully violates Section 11 of the Securities Act of 1933 is subject to fines of up to $100,000 or imprisonment of not more than three years, or both.

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

What is the basis of an accountant's potential criminal liability in rendering professional services?

In which of the following types of cases can issues of accountant-client confidentiality arise?

To lessen his tax liability, a client asks his accountant to misstate information on his tax return. If the accountant does so, she may be subject to fines and up to three years in prison.

The Private Securities Litigation Reform Act of 1995 provides that an auditor can be held liable in a private action for any finding, conclusion, or statement expressed in the report the Act requires the auditor to make to the SEC.

Which of the following is correct with regard to an accountant's contractual liability?

When can an accountant release audit working papers?

Under the Securities Exchange Act of 1934, an accountant's liability for false or misleading statements is based on a good faith negligence standard.

An accountant who willfully violates Section 11 of the 1933 Securities Act is subject only to civil liability.

Accountants' liability under the 1933 and 1934 Securities Acts is more extensive and has fewer limitations than liability under the common law.

List the services that the Sarbanes-Oxley Act prohibits accounting firms from performing for audit clients.

Which of the following is correct with respect to an accountant's working papers?

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance Breach and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits Collections and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Financial Structure of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Consumer Protection

Environmental Law

International Business Law

Introduction to Property Property Insurance Bailments and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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