Exam 47: Professional Liability and Accountability

A failure to follow generally accepted accounting principles and gener?ally accepted auditing standards is proof of a lack of due diligence.

Nguyen Imports, Inc., accuses Ogilvie, an accountant, of committing defalcation. This is

Hadley, an accountant, accumulates working papers while performing an audit for Ilene. After the audit, these documents belong to

Gift Basket Company's liabilities exceed its assets. Gift Basket hires Hill & Dale, an accounting firm, to prepare a balance sheet. Through Hill & Dale's negligent omissions, the sheet shows a net worth. Investment Bank relies on the balance sheet to make a loan to Gift Basket. When Gift Basket defaults, the bank files a suit against Hill & Dale. Under the Restatement rule, Hill & Dale is most likely

An accountant is always liable for a misleading statement that affects the price of a security, even if the accountant acted in good faith.

Professionals are governed by the contracts they enter into with their clients.

Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant, but he also prepares tax returns for clients. Under the In?ternal Revenue Code, liability for preparing a false return may be im?posed on

Rochelle, an accountant, enters into a contract to provide services to Sky Transport Inc. Rochelle does not finish the work within the contract's deadline. Sky Transport pays a penalty for the missed deadline and hires Turbo to complete the job. Rochelle is most likely liable for

Professionals are required to deliver services but the competency of the services is never an issue.

Malpractice is professional negligence.

An accountant can avoid liability by proving that his or her negligence was only the proximate cause of the cli?ent's loss.

Craig is an accountant whose clients include Deep Excavation Corporation. Elbert is Craig's attorney. Under the common law and by statute in many states, working papers that Craig develops when preparing financial reports for Deep Excavation are owned by

An accountant is not required to discover every impropriety, defalcation, and fraud in a client's books.

Randi, an accountant, includes a false statement in a report for Social Media Marketing, Inc., that is filed with the Securities and Exchange Com?mission. When Theo buys stock in Social Media Marketing and loses money on the investment, he files a suit against Randi, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Randi can show that she

For a plaintiff to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, proof of intent is necessary.

In an opinion, an auditor can include a general statement disclaiming any liability for false or misleading financial statements.

Working papers are the documents through which a court orders an accountant to audit a public company.

An accountant is not liable for an omission in a registration statement to a purchaser of securities if the omission had no causal connection to the purchaser's loss.

A professional can not be liable for fraud if he or she did not act with fraudulent intent.

Under the Sarbanes-Oxley Act of 2002, accountants need not retain working papers relating to an audit or review.