Question 1

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

Accepted Answer

An accountant's potential criminal liability in rendering professional services could be based on: 
a. Federal law of securities regulation, 
b. The federal tax code, and 
c. State criminal statutes.

Question 2

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. D

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

An accounting firm may perform both bookkeeping services and audits for the same client.

Accepted Answer

A) True 
 B)False

Question 5

What are the requisite elements of fraud?

Accepted Answer

The requisite elements of fraud include:

Question 6

Which of the following is untrue regarding the relationship of an accountant and the client?

Accepted Answer

A)  It is based upon mutual agreement. 
B)  The accountant is under an ethical obligation not to disclose confidential information. 
C)  The accountant must act in a competent and professional manner. 
D)  The accountant is under a contractual obligation to follow all of the client's instructions and to use the client's figures without question. 
A)  It is based upon mutual agreement. 
B)  The accountant is under an ethical obligation not to disclose confidential information. 
C)  The accountant must act in a competent and professional manner. 
D)  The accountant is under a contractual obligation to follow all of the client's instructions and to use the client's figures without question.

Question 7

To whom does an accountant have potential liability?

Accepted Answer

A)  To his client only. 
B)  To an intended third party beneficiary. 
C)  To a foreseen user of the accountant's work. 
D)  All of these. 
A)  To his client only. 
B)  To an intended third party beneficiary. 
C)  To a foreseen user of the accountant's work. 
D)  All of these.

Question 8

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

Accepted Answer

A)  Civil liability where there is scienter. 
B)  Criminal liability where there is a willful violation. 
C)  Both of these are correct. 
D)  Neither of these is correct. 
A)  Civil liability where there is scienter. 
B)  Criminal liability where there is a willful violation. 
C)  Both of these are correct. 
D)  Neither of these is correct.

Question 9

For an accountant to be civilly liable under Rule 10b-5, the accountant must have acted with scienter.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Accountants are subject to civil liability under the Securities Act of 1933 if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact, but only if reliance on the financial statements is proven.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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.

Question 14

An accountant-client privilege is statutorily recognized in all states, permitting the accountant to refuse to disclose confidential information gleaned from his client.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  Falsely completing a tax return. 
B)  Tampering with accounting records. 
C)  Advising a client to falsely complete his own tax return. 
D)  All of these could subject an accountant to criminal liability. 
A)  Falsely completing a tax return. 
B)  Tampering with accounting records. 
C)  Advising a client to falsely complete his own tax return. 
D)  All of these could subject an accountant to criminal liability.

Question 16

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.

Question 17

Wurst & Wurst is the accounting firm that has been used by the Intercontinental Bank for over twenty years. Tim approached Alfred, a Wurst partner, at a cocktail party. Tim asked about the bank's stability. Although Alfred knew that the bank's stock was overvalued because of some questionable loans, he felt a considerable amount of loyalty to the bank for being a good customer of his accounting firm. Alfred told Tim that Wurst had just finished an audit of the bank, and that the bank was as sound as the Rock of Gibraltar. The next day Tim bought 1,000 shares of Intercontinental. One month later, the bank's losses became the subject of a major financial scandal. Tim is angry and wants to sue. Does he have a case?

Accepted Answer

Yes, under Rule 10b-5, an accountant may

Question 18

A five-member Public Company Accounting Oversight Board oversees the audit of public companies, and the SEC oversees the Board.

Accepted Answer

A) True 
 B)False

Question 19

Diane prepared a registration for the first issuance of stock of the Ledmar Corporation. Diane took the assignment very seriously and spent a great deal of time preparing the statement. Two years after the statement was filed, the SEC began to investigate the company and claims that the information in Diane's statement was misleading, because some of the information given to her by the corporation was false. Diane had tried to verify the information, but was not able to do so. An investor is now suing Diane claiming that she violated the 1933 act. Is Diane liable?

Accepted Answer

Diane will be able to avoid liability by

Question 20

An accountant is subject to potential civil liability arising from the professional services he provides to his clients and third parties.

Accepted Answer

A) True 
 B)False

Exam 43: Accountants Legal Liability

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

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

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

An accounting firm may perform both bookkeeping services and audits for the same client.

What are the requisite elements of fraud?

Which of the following is untrue regarding the relationship of an accountant and the client?

To whom does an accountant have potential liability?

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

For an accountant to be civilly liable under Rule 10b-5, the accountant must have acted with scienter.

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

Accountants are subject to civil liability under the Securities Act of 1933 if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact, but only if reliance on the financial statements is proven.

When can an accountant release audit working papers?

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

An accountant-client privilege is statutorily recognized in all states, permitting the accountant to refuse to disclose confidential information gleaned from his client.

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

Audit working papers would include which of the following?

A five-member Public Company Accounting Oversight Board oversees the audit of public companies, and the SEC oversees the Board.

An accountant is subject to potential civil liability arising from the professional services he provides to his clients and third parties.

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

Filters