Exam 43: Accountants Legal Liability

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Taylor, who is conducting an audit of Oakwood Corporation, becomes aware of information that indicates Oakwood was involved in an illegal payment.Discuss Taylor's responsibilities.

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Question 1

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Taylor must first determine whether an illegal act occurred and its possible effect on Oakwood's financial statements.Then Taylor must inform Oakwood's management about any illegal activity and assure that the audit committee of the board of directors of Oakwood is adequately informed.If Taylor concludes that the illegal act has a material effect on Oakwood's financial statement, neither senior management nor the board has taken timely and appropriate remedial action, and the failure to take remedial action is reasonably expected to warrant departure from a standard auditor report or warrant resignation from the auditor's engagement, Taylor must promptly report her conclusions to Oakwood's board.Within one day of receiving such a report, Oakwood must notify the SEC and furnish Taylor with a copy of the notice.If she doesn't receive such a notice, she may resign, but whether or not she resigns, she must furnish the SEC with her report to the board

Criminal sanctions for accountants are limited to punitive fines.

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(True/False)

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Question 2

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False

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

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Question 3

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Protected individuals under the Restatement view of tort liability for an accountant include potential investors and the general public.

(True/False)

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Question 4

The group responsible for registering public accounting firms that prepare audit reports for issuers; overseeing the audit of public companies; establishing audit report standards and rules; and inspecting, investigating, and enforcing compliance on the part of registered public accounting firms is the:

(Multiple Choice)

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Question 5

When can an accountant release audit working papers?

(Multiple Choice)

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Question 6

An accountant who substantially performs his contractual duties is generally entitled to be compensated for the contractually agreed-upon fee, less any damages caused to the client.

(True/False)

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Question 7

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.

(True/False)

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Question 8

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom, are known as:

(Multiple Choice)

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Question 9

First Cardinal Bank has used the StoneCipher accounting firm for over twenty years.Orville, a customer of First Cardinal, approached Alfred, a StoneCipher partner, at a local business owner's networking luncheon.Orville asked about the bank's financial stability.Although Alfred knew that the bank's stock was overvalued because of some questionable loans, he felt a considerable amount of loyalty to First Cardinal for being a good customer of his accounting firm.Alfred told Orville that StoneCipher had just finished an audit of the bank, and that the bank was as sound as the Rock of Gibraltar.The next day Orville bought 800 shares of First Cardinal .One month later, the bank's losses became the subject of a major financial scandal.Orville is angry and wants to sue.Does he have a case?

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Question 10

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?

(Multiple Choice)

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Question 11

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

(Multiple Choice)

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Question 12

An accountant has no liability to parties other than the client.

(True/False)

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Question 13

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

(Essay)

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Question 14

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

(True/False)

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Question 15

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.

(True/False)

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Question 16

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

(Multiple Choice)

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Question 17

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

(Multiple Choice)

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Question 18

Historically, an accountant's liability for negligence extended only to the client and third party beneficiaries.

(True/False)

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Question 19

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

(Multiple Choice)

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Question 20

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Exam 43: Accountants Legal Liability

Taylor, who is conducting an audit of Oakwood Corporation, becomes aware of information that indicates Oakwood was involved in an illegal payment.Discuss Taylor's responsibilities.

Criminal sanctions for accountants are limited to punitive fines.

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Protected individuals under the Restatement view of tort liability for an accountant include potential investors and the general public.

When can an accountant release audit working papers?

An accountant who substantially performs his contractual duties is generally entitled to be compensated for the contractually agreed-upon fee, less any damages caused to the client.

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.

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom, are known as:

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

An accountant has no liability to parties other than the client.

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

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

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.

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

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

Historically, an accountant's liability for negligence extended only to the client and third party beneficiaries.

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

Introduction to Law

Business Ethicspart Ii: the Legal Environment of Business

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Negligence and Strict Liabilitypart Iii: Contracts

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 Remediespart Iv: Sales

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remediespart V: Negotiable Instruments

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits, Collections, and Funds Transferspart Vi: Agency

Relationship of Principal and Agent

Relationship With Third Partiespart Vii: Business Associations

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 Corporationspart Viii: Debtor and Creditor Relations

Secured Transactions and Suretyship

Bankruptcypart Ix: Regulation of Business

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Consumer Protection

International Business Lawpart X: Property

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

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