Question 1

Under the Restatement (Second)of Torts,accountants can be held liable for negligence to any third parties.

Accepted Answer

A) True 
 B)False  False

Question 2

Under rules of professional misconduct,an attorney should not engage in conduct involving deceit.

Accepted Answer

A) True 
 B)False  True

Question 3

A professional cannot be liable for fraud in the absence of fraudulent intent.

Accepted Answer

A) True 
 B)False  False

Question 4

Meri,an accountant,includes a false statement in a report for Novelty Paper Products,Inc.(NPPI)that is filed with the Securities and Exchange Commission.When Otho buys stock in NPPI and loses money on the investment,he files a suit against Meri,alleging fraud under the 1934 Securities Exchange Act.To avoid liability,Meri can show that she

Accepted Answer

A)  intended to defraud NPPI, not Otho. 
B)  intended to profit on stock trades generally, not only with Otho. 
C)  is an otherwise competent accountant. 
D)  was not aware her statement was false. 
A)  intended to defraud NPPI, not Otho. 
B)  intended to profit on stock trades generally, not only with Otho. 
C)  is an otherwise competent accountant. 
D)  was not aware her statement was false.

Question 5

Professionals can limit their liability for the misconduct of other professionals with whom they work to some extent by disclaiming it.

Accepted Answer

A) True 
 B)False

Question 6

A professional owes a duty to his or her client to honor the terms of their contract.

Accepted Answer

A) True 
 B)False

Question 7

A qualified opinion must be specific and identify the reason for the qualification.

Accepted Answer

A) True 
 B)False

Question 8

Flynn,an accountant,helps Grange Supply Company prepare and file a false federal corporate income tax return.Under the Internal Revenue Code,this is

Accepted Answer

A)  a felony punishable by a fine and imprisonment. 
B)  a felony punishable only by a fine. 
C)  a misdemeanor punishable only by a fine. 
D)  a civil violation subject to a liability suit but not a crime. 
A)  a felony punishable by a fine and imprisonment. 
B)  a felony punishable only by a fine. 
C)  a misdemeanor punishable only by a fine. 
D)  a civil violation subject to a liability suit but not a crime.

Question 9

Tiny is an accountant.Tiny's violation of generally accepted accounting principles and generally accepted auditing standards

Accepted Answer

A)  does not indicate that Tiny was negligent. 
B)  is prima facie evidence that Tiny was negligent. 
C)  precludes Tiny from raising any defense against a negligence claim. 
D)  will never subject Tiny to liability. 
A)  does not indicate that Tiny was negligent. 
B)  is prima facie evidence that Tiny was negligent. 
C)  precludes Tiny from raising any defense against a negligence claim. 
D)  will never subject Tiny to liability.

Question 10

In a few states,communications between an accountant and his or her client are privileged.

Accepted Answer

A) True 
 B)False

Question 11

Grover Nut Company files a suit against Hud,its former accountant,alleging actual fraud.Grover must prove

Accepted Answer

A)  intent to deceive. 
B)  misrepresentation of a non-material fact. 
C)  the lack of an injury. 
D)  unjustifiable reliance. 
A)  intent to deceive. 
B)  misrepresentation of a non-material fact. 
C)  the lack of an injury. 
D)  unjustifiable reliance.

Question 12

An attorney may be liable to a third party who relies on the attorney's legal opinion to the third party's detriment

Accepted Answer

A) True 
 B)False

Question 13

Leslie,an accountant,enters into a contract to provide services to Marty.Leslie does not finish the work within the contract's deadline.Leslie is

Accepted Answer

A)  liable for breach of contract. 
B)  not liable, because Leslie is a professional. 
C)  not liable, because Leslie's failure must have been Marty's fault. 
D)  not liable, because the work took longer than foreseen. 
A)  liable for breach of contract. 
B)  not liable, because Leslie is a professional. 
C)  not liable, because Leslie's failure must have been Marty's fault. 
D)  not liable, because the work took longer than foreseen.

Question 14

Omar can be described as "a reasonably competent general practitioner of ordinary skill,experience,and capacity." This is the normal standard for judging

Accepted Answer

A)  a client's performance. 
B)  an attorney's performance. 
C)  anyone's performance. 
D)  no one's performance. 
A)  a client's performance. 
B)  an attorney's performance. 
C)  anyone's performance. 
D)  no one's performance.

Question 15

Jerzy is an accountant whose clients include Kopper Kettle Restaurants,Inc.For a violation of securities laws,Jerzy may be subject to

Accepted Answer

A)  comprehensive liability. 
B)  corporate liability. 
C)  criminal liability. 
D)  no liability. 
A)  comprehensive liability. 
B)  corporate liability. 
C)  criminal liability. 
D)  no liability.

Question 16

Doug is an accountant whose clients include Everyday Products,Inc.(EPI).Under the Ultramares rule,if Doug is negligent in his work for EPI,he could be liable to

Accepted Answer

A)  EPI and any third party. 
B)  EPI and third parties who are foreseen users of his work for EPI. 
C)  EPI and third parties who are reasonably foreseeable users of his work for EPI. 
D)  EPI only. 
A)  EPI and any third party. 
B)  EPI and third parties who are foreseen users of his work for EPI. 
C)  EPI and third parties who are reasonably foreseeable users of his work for EPI. 
D)  EPI only.

Question 17

Yvon,an accountant,is charged with negligence by Zesty Sauce,Inc.,a client.Yvon may successfully defend against the claim if she can show that

Accepted Answer

A)  scienter was lacking. 
B)  she complied with all generally accepted accounting principles. 
C)  the negligence was not the proximate cause of the client's losses. 
D)  the negligence was only contributory. 
A)  scienter was lacking. 
B)  she complied with all generally accepted accounting principles. 
C)  the negligence was not the proximate cause of the client's losses. 
D)  the negligence was only contributory.

Question 18

Mona,an accountant,prepares for NuTech Corporation a financial statement that omits a material fact.The financial statement is included in NuTech's registration statement,which Pam reads.Pam buys NuTech stock.Under Section 11 of the Securities Act of 1933,for Mona to be liable for the omission,Pam must show that

Accepted Answer

A)  Pam relied on the omission. 
B)  Pam suffered a loss on the stock. 
C)  Pam knew about the omission before making her purchase. 
D)  the omission had no causal connection to her loss. 
A)  Pam relied on the omission. 
B)  Pam suffered a loss on the stock. 
C)  Pam knew about the omission before making her purchase. 
D)  the omission had no causal connection to her loss.

Question 19

Aiding or assisting in the preparation of a false tax return is a felony.

Accepted Answer

A) True 
 B)False

Question 20

Craig is an accountant whose clients include Digby 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 Digby are owned by

Accepted Answer

A)  Craig. 
B)  Digby. 
C)  Elbert. 
D)  no one-the papers must be destroyed immediately after use. 
A)  Craig. 
B)  Digby. 
C)  Elbert. 
D)  no one-the papers must be destroyed immediately after use.

Exam 34: Liability of Accountants Other Professionals

Under the Restatement (Second)of Torts,accountants can be held liable for negligence to any third parties.

Under rules of professional misconduct,an attorney should not engage in conduct involving deceit.

A professional cannot be liable for fraud in the absence of fraudulent intent.

Professionals can limit their liability for the misconduct of other professionals with whom they work to some extent by disclaiming it.

A professional owes a duty to his or her client to honor the terms of their contract.

A qualified opinion must be specific and identify the reason for the qualification.

Flynn,an accountant,helps Grange Supply Company prepare and file a false federal corporate income tax return.Under the Internal Revenue Code,this is

Tiny is an accountant.Tiny's violation of generally accepted accounting principles and generally accepted auditing standards

In a few states,communications between an accountant and his or her client are privileged.

Grover Nut Company files a suit against Hud,its former accountant,alleging actual fraud.Grover must prove

An attorney may be liable to a third party who relies on the attorney's legal opinion to the third party's detriment

Leslie,an accountant,enters into a contract to provide services to Marty.Leslie does not finish the work within the contract's deadline.Leslie is

Omar can be described as "a reasonably competent general practitioner of ordinary skill,experience,and capacity." This is the normal standard for judging

Jerzy is an accountant whose clients include Kopper Kettle Restaurants,Inc.For a violation of securities laws,Jerzy may be subject to

Doug is an accountant whose clients include Everyday Products,Inc.(EPI).Under the Ultramares rule,if Doug is negligent in his work for EPI,he could be liable to

Yvon,an accountant,is charged with negligence by Zesty Sauce,Inc.,a client.Yvon may successfully defend against the claim if she can show that

Aiding or assisting in the preparation of a false tax return is a felony.

Craig is an accountant whose clients include Digby 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 Digby are owned by

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