Deck 32: Professional Liability

Question 1

State statutes that regulate the sale of stock are frequently referred to as blue sky laws because they are set up to stop the sale of securities that are as empty as several feet of blue sky.

Answer 1

True
Explanation: State statutes that regulate the sale of stock are frequently referred to as blue sky laws because they are set up to stop the sale of securities that are as empty as several feet of blue sky.

Question 2

Ostensible authority is created when a hospital presents itself to the public-at-large as a provider of health care services and, in some way, leads the patient to believe that a physician with staff privileges is an employee of the hospital.

Answer 2

True
Explanation: Ostensible authority is created when a hospital presents itself to the public-at-large as a provider of health care services and, in some way, leads the patient to believe that a physician with staff privileges is an employee of the hospital-for example, if the hospital allows the physician to wear a hospital identification tag, use hospital equipment, dispense medication at the hospital, issue orders to hospital employees, etc.

Question 3

The Securities and Exchange Commission (SEC) has been charged with investigating how to regulate financial planners, including especially those planners who perform income tax planning services.

Answer 3

False
Explanation: The Securities and Exchange Commission (SEC) has been charged with investigating the information that is given to investors. The Government Accountability Office (GAO) has been charged with investigating how to regulate financial planners.

Question 4

If Small Co. uses a unique and unrecognized accounting method, it will-most likely-be subject to an adverse opinion.

Question 5

For a patient to succeed in a negligence case against a health care professional, the patient must demonstrate that the health care provider owed a duty to that patient.

Question 6

Kits wants to become a CPA and this must be approved by a vote of the SEC.

Question 7

The Platonic Stabilizing standard refers to a legal balancing act between the various liability standards and the individualized nature of each case.

Question 8

Certified public accountants (CPAs) and non-CPA partners are not under the authority of the Consumer Financial Protection Bureau as long as they are performing routine and traditional tasks.

Question 9

Only two members of the PCAOB may be CPAs.

Question 10

GAAP was created by the FASB.

Question 11

A patient's general consent for routine tests and procedures can be implied when she enters the hospital.

Question 12

When dealing with architects, the "cost of repair" rule applies to situations where a structure is unusable for its originally intended purpose.

Question 13

A disclaimer is a type of qualified opinion.

Question 14

To be licensed as an attorney, Eva does not have to meet an experience requirement.

Question 15

Auditors may unconsciously help the organization they audit, rather than the outside investors.

Question 16

If Nadia, a licensed physician, operated on a patient without consent, Nadia could be guilty of battery.

Question 17

The federal government's power to regulate accounting emerges from the inherent police powers found in the Fifth Amendment.

Question 18

An accountant who prepares a fraudulent financial statement is liable to anyone who can be reasonably foreseen as relying on that statement.

Question 19

If an accountant follows the GAAS or GAAP guidelines, it will automatically lead to his or her vindication in a court of law.

Question 20

The SEC has the power to develop regulations that will create a "whistleblowing bounty program" analogous to the one used by the IRS.

Question 21

State security statutes are commonly called ____________ laws.

A) exchange
B) third party
C) common
D) blue sky

Question 22

Claus tells CPA Vernon that he needs an audit to borrow money from Big Bank. Claus pays Vernon, and Claus takes Vernon's audit to Big Bank who makes the loan. When Claus defaults on the loan, Big discovers numerous liabilities that the audit did not reveal. Can Big Bank sue Vernon for negligence in a state that recognizes the near-privity rule?

A) Yes, because Vernon breached the trust that Claus had placed in him.
B) No, because Big and Vernon did not have a contract.
C) Yes, because Big was an actually named third party.
D) No, because Vernon does not guarantee the collection of Big's loans.

Question 23

A(n) ____________ is an examination of the financial records of an organization to determine whether the records are a fair representation of the actual financial health of the organization.

A) audit
B) appraisal
C) review
D) dissolution

Question 24

Which of the following would be considered a valid informed consent by a court?

A) Dr. Ambrose tells her patient in advance about a dangerous procedure and the risk involved, and obtains the patient's informed consent in writing on a form that is signed by the patient.
B) Dr. Ambrose tells her patient in advance about a dangerous procedure and the risk involved, and obtains the patient's informed consent in writing on a form that is signed by the patient and witnessed by a third party.
C) Dr. Ambrose obtains her patient's oral informed consent, which is witnessed by a third party.
D) Dr. Ambrose tells her patient the procedure is mandatory.

Question 25

Dan is an accountant with Miller & Co. The financial condition of Miller & Co. is not so good, but Dan shows it to be very healthy while preparing its financial statement, knowing that Miller & Co. will show the statement to Chase in seeking financing for its new project. Dan will ____________ personally liable to Chase if the new project goes bankrupt, and Chase will be able to recover against Miller based on the liability theory of ____________.

A) not be; general consent
B) be; attorney-client privilege
C) not be; breach of contract
D) be; actually named third parties

Question 26

Eva, a Mercy Hospital patient, received medication intended for another patient and, as a result, suffered severe complications. In a malpractice case against Mercy, regarding the administering of the wrong medication to Eva, most likely expert testimony:

A) will be required.
B) will be required only if it happened once.
C) will not be required only if the other patient was in a different area of the hospital.
D) will not be required.

Question 27

Cal, an investor, lost $15,000 after purchasing corporate stock based on a false registration statement. Under the Securities Act of 1933, Cal:

A) can sue the accountant if he can show the registration statement was misleading about a material matter.
B) may sue the accountant who prepared the registration statement under the Securities Exchange Act of 1954.
C) may sue the accountant who prepared the registration statement under the Securities Act of 1933.
D) may sue the corporation of stock fraud under the Securities Exchange Act of 1934.

Question 28

An attorney has a duty of ____________ to protect the client and to make certain that the client receives advice and representation that is free of conflicting interests.

A) due care
B) loyalty
C) proximity
D) good faith

Question 29

Wolfgang was transported while unconscious from the scene of a motorcycle accident to a local hospital, where he was admitted for emergency treatment. Does the hospital need to be concerned about obtaining written consent to treatment from someone before starting treatment on Wolfgang?

A) Yes, informed consent requires a signed document.
B) No, it can get consent after the treatment.
C) Yes, without consent from the next of kin, there is liability.
D) No, general consent is implied, and this is an emergency.

Question 30

When auditors conclude that the financial records of the company are an accurate reflection of the company's financial status, they will issue a(n):

A) unqualified opinion.
B) qualified opinion.
C) adverse opinion.
D) disclaimer.

Question 31

Hospitals cannot be held liable for the negligence of a physician if that physician is not an employee of the hospital.

Question 32

Dr. Samuel, a physician, is being sued for medical malpractice. If the "true locality" rule was applied in his case, the court would judge Dr. Samuel's actions:

A) against those of a physician in a community of similar size and socioeconomic character.
B) by concentrating on the geographical limits of a state border.
C) by looking at the standard of care used in the same exact locality as Samuel.
D) on the basis of expert testimony provided from his locality.

Question 33

Jim tells his independent accountant, Rachelle, to prepare a financial statement for his business associate, Mel. If Rachelle is negligent in her preparation of this financial statement:

A) Rachelle will be liable if Mel suffers actual financial loss due to her negligence.
B) Jim will be liable if Mel suffers actual financial loss due to Rachelle's negligence.
C) Rachelle will still not be liable to Mel.
D) Mel will not recover any money for financial loss due to her negligence because the business associate is not an actually named third party.

Question 34

Angela asserts that HIPAA allows her to have copies of the records that result from her psychotherapy sessions with Dr. Xenon. Angela:

A) can look through the records along with Dr. Xenon.
B) must have Dr. Xenon's permission.
C) must have Dr. Xenon's permission and can only look through the records along with Dr. Xenon.
D) can have personal copies of these records.

Question 35

A(n) ____________ opinion is a qualified opinion by an auditor that indicates that the financial statements are an accurate reflection of the company's financial health apart from some minor deviation from GAAP, not serious enough to warrant an adverse opinion.

A) "except for"
B) "unless"
C) "but for"
D) "indeterminate"

Question 36

____________ refer(s) to a system of coordinated health care institutions for Medicare patients developed by the Department of Health and Human Services.

A) High-deductible health plans
B) Preferred provider organizations
C) Accountable care organizations
D) Health maintenance organizations

Question 37

Milton is offered a contract by Marcos and Co. to design condos for a fourteen-story structure. After the condos are completed, Marcos and Co. finds that instead of two cupboards, all the condos have only one cupboard. The error is traced back to Milton's faulty design. The error notwithstanding, the condos are still in absolutely usable condition. What is Milton's liability?

A) Milton has to reimburse the client for any extra money spent to fit in an extra cupboard.
B) Milton has to pay Marcos and Co. the difference between the market value of the building as it stands and the market value of the intended structure.
C) Milton has to pay the tenants the cost for fitting in an extra cupboard.
D) Milton has to pay the state a fine for the inconvenience caused to the tenants.

Question 38

The Model Rules of Professional Conduct for attorneys was established by:

A) the American Bar Association.
B) the National Conference of Commissioners on Uniform State Laws.
C) the American Lawyer's Cooperative System.
D) Congress.

Question 39

Which of the following statements is true about the "true locality" rule (TLR)?

A) The TLR requires the court to look at the standard of care used in the exact locality of the physician.
B) The TLR permits the court to judge the actions of a local physician against those of a physician in a community of comparable size and socioeconomic character.
C) The TLR ignores the socioeconomic character of the physician's home base and concentrates instead on the geographical limits of a state border.
D) The TLR permits general practitioners to be judged by one criterion and specialists by another.

Question 40

Miranda, a student in Brad's business law class, asks a hypothetical question that is, in fact, based upon a current problem that her brother, Stan, is having. Brad gives an incorrect answer, and Stan suffers a loss when he acts according to the answer Miranda provided him. Brad has:

A) no duty of due care to Stan, but has to Miranda.
B) no duty of due care to either Miranda or Stan.
C) a duty of due care to both Stan and Miranda.
D) a duty of due care to Stan, but not to Miranda.

Question 41

Small Hospital uses independent physicians and allows them to wear a Small identification tag and issue orders to Small employees. Discuss the risk Small hospital is taking.

Question 42

Big Co. hires its auditor, Geraldo, as Vice President for Finance. Geraldo is a partner in Seasoned Accounting, a firm that will continue to audit Big. Discuss the major legal issues this situation raises.

Question 43

____________ occurs if the hospital has retained a physician that the governing body of the hospital knew or should have known was incompetent.

A) Ostensible authority
B) Negligent credentialing
C) A staff privilege
D) Indifferent testimony

Question 44

Attorney Riana prepares a will for her client, Jones. After Jones dies, Jones's son, Ted, sues Riana because Jones did not minimize the probate process by creating probate-avoiding devices in the will. Discuss if Ted's suit will be successful.

Question 45

Spratt, an accountant, deliberately falsified a financial statement she was preparing for Aniline Industries. Gladden and Jarvis invested in Aniline based on the statement. A banker at Kidston National Bank also relied on the statement in deciding to make a loan to Aniline. When Gladden, Jarvis, and Kidston National Bank learned of the deception, they told Spratt that they were going to bring suit against her. Spratt told them that a court would never rule in their favor because they were not known third parties. Was Spratt correct? Why or why not?

Question 46

Carmine was a patient at the Galion Memorial Hospital. While Carmine was out of the room, Riley accidentally spilled a pitcher of water on the floor of Carmine's room. Before cleaning up the water, Riley took her lunch break. When Carmine returned to his room, he slipped in the puddle of water, fell, and injured himself. Carmine sued Riley and the hospital for negligence. At the trial, Carmine argued that there was no need for an expert witness to testify as to the standard of care rendered by the nurse. Was Carmine correct? Explain.

Question 47

The architectural firm of Maxwell-Wyatt, Inc. designed a house for Sandoval. Due to an error in the architect's plans, the drain in the basement did not work properly. Can Sandoval rightfully expect the firm to pay him the $1,500 it would cost to correct the error? Explain.

Question 48

Sally is angry with George, her attorney, and wants to sue him for malpractice. Discuss what Sally must prove to win her case.

Question 49

Betty is unhappy with her physician, Todd, and wants a copy of her medical records to be able to consult another physician. Todd says the records are his work product and his property. Discuss the likely outcome of this dispute.

Question 50

Big Co. has made a variety of unsecured, undisclosed, large personal loans to top management officials. Belinda audits Big and discovers this problem. Discuss what type of audit opinion Belinda is likely to issue.

Question 51

Charlie, a high school dropout, works as an accountant for Small Co. Discuss if the state may prevent Charlie from working as an accountant due to his lack of education and failure to meet state registration requirements.