Deck 11: Liability of Accountants and Other Professionals

Question 1

The accountant is the legal owner of working papers after an audit.

Answer 1

True

Question 2

State protection of an accountant-client privilege does not apply when a federal law is at issue.

Answer 2

True

Question 3

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance upon the fraudulent information.

Answer 3

True

Question 4

Many accountants and other professionals store confidential information on servers owned and maintained by a third party.

Question 5

The role of accountants became a question of significant public interest after a significant amount of responsibility for the bankruptcy of ________ Corporation was placed on the firms that provided accounting services for the corporation.

A)Acron
B)Deltoid
C)Enron
D)Prolific
E)Selinas

Question 6

Under the Restatement test,regarding liability for negligence to third parties,an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.

Question 7

The use of cloud computing,where data and software are stored on servers owned and maintained by a third party,is standard practice and does not raise any ethical concerns.

Question 8

The accountant-client privilege means that the accountant has the privilege of demanding payment for accounting services.

Question 9

Which of the following was the result at the Supreme Court level in Matrixx Initiatives,Inc. ,v.Siracusano,the case in the text in which the plaintiffs brought a class action alleging that the defendant violated securities laws by failing to release reports that its product,Zicam Cold Remedy,had been found to result in a loss of smell?

A)That under the "total mix" standard,the plaintiffs failed to sufficient plead materiality in regard to the alleged failure to disclose and therefore would not be allowed to proceed.
B)That although under the "total mix" standard,the plaintiffs pled materiality in regard to the alleged failure to disclose,the plaintiffs failed to sufficiently plead scienter and would therefore not be allowed to proceed.
C)That under the "total mix" standard,the plaintiffs sufficient pled materiality in regard to the alleged failure to disclose,that plaintiffs sufficiently pled scienter;and that plaintiffs would be allowed to proceed.
D)That the plaintiffs would be allowed to proceed because they sufficiently pled scienter and also presented statistically significant evidence that Zicam caused loss of smell.
E)That the plaintiffs would not be allowed to proceed because they did not present statistically significant evidence that Zicam caused loss of smell.

Question 10

In the Case Opener "WorldCom," the court ruled that the chairman of WorldCom's board of directors could have no personal liability for misrepresentations of the company's condition in filings with the Securities and Exchange Commission.

Question 11

Accountants may not be sued for malpractice because that action is only available in the medical community.

Question 12

Under Section 11 of the Securities Act of 1933,a plaintiff may only recover if it can be established that the plaintiff purchased securities in an initial public offering.

Question 13

Which of the following was the result on appeal in the case in the text In re Century Aluminum Company Securities Litigation,the case in the text involving plaintiffs who purchased secondary-offering shares and who attempted to sue under Section 11 of the Securities Act of 1933 for misrepresentations allegedly released regarding the secondary offering?

A)The court allowed the case to proceed contingent on the plaintiffs submitting proof by an expert that misrepresentations occurred.
B)The court affirmed the trial court's dismissal of the case recognizing that it is impossible as a matter of law for purchasers of aftermarket shares to have claims based on Section 11 because Section 11 does not apply to secondary-offering shares.
C)The court affirmed the trial court's dismissal of the case recognizing that it is often impossible for purchasers of aftermarket shares to have claims based on Section 11 because they normally purchase through brokers that do not acknowledge the source of the shares.
D)The court affirmed the trial court's dismissal of the case recognizing that the plaintiffs had not submitted sufficient evidence of misrepresentations.
E)Finding that the plaintiffs had met all prerequisites in regard to proof,the court ruled that the case should be allowed to proceed to trial.

Question 14

A[n] ________ action is an action against an accountant for failing to properly perform the job for which the accountant was hired.

A)Malfeasance
B)Malpractice
C)Misjudgment
D)Impropriety
E)Misguidance

Question 15

When hired to perform a task,the accountant enters into a contract called an engagement letter with the client that makes explicit and implicit promises,which,if not fulfilled,subject the accountant to liability.

Question 16

The reasonably foreseeable users test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and did,in fact,use and rely upon that work product for a proper business purpose.

Question 17

The attorney-client privilege means that information given by a client to his or her accountant cannot be revealed without the client's permission.

Question 18

Under common law,what are the three primary types of liability assessed against accountants?

A)Breach of contract,fraud,and accounting misalignment
B)Fraud,negligence,and accounting misalignment
C)Breach of contract,negligence,and innocent misrepresentation
D)Negligence,breach of contract,and accounting misalignment
E)Negligence,breach of contract,and fraud

Question 19

Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law.

Question 20

Plaintiffs have been successful in recent years bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Question 21

If no,or insubstantial,accounting procedures were used in the compilation of the document,a financial statement is considered .

A)Audited
B)Generally accepted
C)Qualified
D)Unaudited
E)Unqualified

Question 22

When an accountant is hired to perform a task,the contract the accountant enters into with a client is referred to as a[n] ________.

A)Performance letter
B)Engagement letter
C)Accounting and auditing agreement
D)Procurement letter
E)Accounting contract

Question 23

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

A)The Privity Test
B)The Restatement Test
C)The Ultramares Rule
D)The Reasonably Foreseeable Users Test
E)The Near Privity Test

Question 24

Which of the following involves accountant liability to third parties based upon privity or near privity?

A)The Reliance Rule
B)The Restatement test
C)The Carroll Rule
D)The Class test
E)The Ultramares rule

Question 25

Which group established GAAS?

A)The Financial Accounting Standards Board
B)The American Institute of Certified Public Accountants
C)The American Institute of Auditors
D)The Federal Accounting Standards Board
E)The American Accounting and Auditing Standards Board

Question 26

Which of the following is true regarding states that have adopted the reasonably foreseeable users test for accountant liability to third-parties?

A)Very few states have adopted it.
B)All states have adopted it.
C)Three-quarters of the states have adopted it.
D)All 50 states have rejected it although it is the proposed rule under the Restatement Third)of Torts.
E)Half the states have adopted it.

Question 27

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

A)The Ultramares Rule
B)The Restatement Test
C)The Privity Rule
D)The Near Privity Rule
E)The Reasonably Foreseeable Users Test

Question 28

Generally,unless engaged to detect ________,an accountant is not a fraud detector unless the fraud is uncovered in the course of exercising reasonable care and skill.

A)Malpractice
B)Malfeasance
C)Fraud
D)Negligence
E)Misfeasance

Question 29

An accountant is entitled to which of the following in the instance of a breach of contract where the accountant completed substantial performance?

A)No more than one thousand dollars.
B)The full amount of the contractually agreed-on fee minus the amount of damages caused by the accountant.
C)The contractually agreed-on fee without any deduction.
D)Nothing.
E)A reasonable hourly rate.

Question 30

When an accountant is found liable for fraud,what type of damages may be assessed in addition to compensatory damages in order to punish the accountant?

A)Material
B)Punitive
C)Nominal
D)Punishabl e
E)?Incidenta l

Question 31

How many states have adopted the Restatement Test of accountant liability for negligence to third-parties?

A)About half the states
B)All the states
C)One-fourth of the states
D)None because there is no Restatement test
E)Only a few states

Question 32

What is the rationale behind the Restatement Test of accountant liability to third-parties?

A)Potential investors should have a route of recovery even if they could not be foreseen by accountants.
B)The general public should have a route of recovery even if they could not be foreseen by the accountant.
C)It is only fair to hold accountants liable if they are in privity with a plaintiff.
D)The economy will benefit if investors recognize that they have sufficient rights of recovery.
E)Much of what accountants do is prepare work for parties that are not their clients and therefore,it makes sense for accountants to owe a duty to intended receivers.

Question 33

Fraud without fraudulent intent is known by which term?

A)Immaterial fraud
B)Constructive fraud
C)Reliance fraud
D)Actual fraud
E)Presumed fraud

Question 34

When an audit is complete,an accountant usually issues a[n] ________ letter stating his or her assessment of the company that was audited.

A)Opinion
B)Responsive
C)Accounting
D)Disclaimer
E)Auditing

Question 35

Which of the following is false regarding compliance with GAAP and GAAS?

A)In some circumstances,a reasonable,competent accountant would do more than that the GAAP or GAAS requires.
B)State statutes may not impose additional legal requirements on accountants beyond GAAP and GAAS.
C)Failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty.
D)GAAP standards are established by the Financial Accounting Standards Board,and GAAS standards are established by the American Institute of Certified Public Accountants.
E)Compliance with GAAP and GAAS does not automatically mean that the duty of care has been met.

Question 36

Which of the following is true regarding states adhering to the privity or near privity rule for third party liability of accountants?

A)One-half of the states utilize it.
B)All the states utilize it.
C)Three-quarters of the states utilize it.
D)All states except one utilize it.
E)Only a few states utilize it.

Question 37

Under the ________,an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.

A)Carroll rule
B)Reliance rule
C)Ultramares rule
D)Class test
E)Restatement test

Question 38

GAAP was established by which of the following groups?

A)The American Institute of Auditors
B)The American Institute of Certified Public Accountants
C)The Financial Accounting Standards Board
D)The Federal Accounting Standards Board
E)The American Accounting and Auditing Standards Board

Question 39

Which statement accurately describes the liability of accountants under the law of Canada?

A)Canadian law does not recognize liability on the part of an auditor for misrepresentations made in secondary-market disclosures made with the auditors' written consent.
B)As in the U.S. ,in Canada the common law holds accountants liable for negligence to clients.
C)Canadian law is well settled in relation to an accountant's liability to nonclients.
D)In Quebec alone,accountants may not be held liable even if a causal link between fault and damage is established.
E)Canadian law does not recognize liability of an auditor in relation to a prospectus distributed with the auditor's filed consent by an issuer of securities containing misrepresentations.

Question 40

At a minimum,the duty of care of the accountant entails compliance with which of the following?

A)Generally acknowledged accounting principles only.
B)Generally accepted accounting principles and generally accepted auditing standards.
C)Generally accepted accounting principles only.
D)Generally accepted auditing standards and generally acknowledged accounting principles.
E)Generally acknowledged auditing standards only.

Question 41

Which of the following may be held liable in a malpractice action?

A)Doctors but not accountants or real estate brokers
B)Accountants and real estate brokers but not doctors
C)Doctors,accountants,and real estate brokers
D)Doctors and real estate brokers but not accountants
E)Doctors and accountants but not real estate brokers

Question 42

[Travel Plans] Amina,a certified public accountant,is hired by Yuri to do an audit on his business.He tells her that the audit results will be used by him in an attempt to obtain a $10,000 loan,probably from Bank ABC.Later,however,Yuri changes his mind and uses the approved financial statements from Amina to get a loan for $100,000 from Bank XYZ.On the same day that she was hired by Yuri,Amina,who specializes in reviewing financial statements for companies seeking loans,was approached by Jonathan,who asked her to review his financial statements so that he could get a loan for $10,000 from an unspecified bank.Amina approved the statements,and he got a loan from Bank ABC.Additionally,Maggie requested that Amina review her financial statements so that she could get a loan of $25,000 from a rich uncle.Amina is a bit uneasy about Maggie because she believes that Maggie is somewhat untrustworthy.Therefore,Amina requires that Maggie agree in writing that the report will be transmitted only to the uncle,not to any other potential lenders.Amina approved the financial statements but,in fact,Maggie uses the approved statements to get a loan for$25,000 from Bank XYZ.During the time that she had set aside to audit and review the financial statements of Yuri,Jonathan,and Maggie,Amina was also preparing for an important trip.She was busy arranging transportation and accommodations for her stay.All of this negatively affected her work and she negligently approved all financial statements referenced.Unfortunately,Yuri,Jonathan,and Maggie ended up defaulting on the loans.The lenders sued Amina.
Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding whether Bank XYZ can recover against Amina based upon the loan to Yuri?

A)Bank XYZ will not be able to recover $100,000 from Amina because the transaction went from $10,000 to $100,000,increasing materially the audit risk.
B)Bank XYZ will be able to recover from Amina because there was privity of contract.
C)Bank XYZ will be able to recover from Amina only if they have been a client of hers in the past.
D)Bank XYZ will not be able to recover because it was not in privity with Amina.
E)Bank XYZ will not be able to recover because Amina did not know that Yuri planned to get a loan from Bank XYZ.

Question 43

Which of the following was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms?

A)The Auditing Analysis and Review Board
B)The Certified Public Accountant Commission
C)The Public Accounting Firms Oversight Commission
D)The Public Company Accounting Oversight Board
E)The Securities Review Board

Question 44

The various documents used and developed during an audit,including notes,calculations,and memorandums,are called which of the following?

A)Accounting memoranda.
B)Auditing copies.
C)Client documentation.
D)Calculation documents.
E)Working papers.

Question 45

[Accountant Dissatisfaction] Andrew agreed to perform accounting services for Dominique,and they entered into a contract setting forth the terms of their agreement.Dominique wanted Andrew to review her financial information and her system of internal controls.Dominique became dissatisfied with Andrew's work after he reported some irregularities in her financial statements.Andrew,on the other hand,claimed that he had adequately performed his duties and that,at the most,any mistakes that he made were minimal.
The contract that Andrew and Dominique entered into setting the scope of Andrew's duties is referred to as a[n] ________.

A)Accounting contractual letter
B)Engagement letter
C)GAAP letter
D)GAAS letter
E)Auditing contractual letter

Question 46

Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding the action brought by Bank ABC against Amina based upon the loss of funds on Jonathan's loan?

A)The bank will be able to recover because Amina was aware of how her work would be used even if she did not know the exact name of the bank involved.
B)The bank will not be able to recover unless it can establish that it had dealt with Amina in the past.
C)The bank will be able to recover because there was privity of contract.
D)The bank will not be able to recover because the identity of the bank was not known to Amina.
E)The bank will be able to recover because no more than $10,000 was involved.

Question 47

In negligence cases involving the accountant's work,which of the following is true regarding the use of working papers?

A)Working papers may be used as evidence in negligence cases only if the accountant failed to provide the client with copies of them.
B)Working papers cannot be used as evidence in negligence cases.
C)Working papers can be used as evidence in negligence cases only if a bank is the plaintiff.
D)Working papers can be used as evidence in negligence cases.
E)Working papers can be used as evidence in negligence cases only if a non-corporate plaintiff is involved.

Question 48

Which section of the Securities Act makes accountants civilly liable for misstatements and omissions of material facts made in the registration statements required by the SEC?

A)Section 12 of the Securities Act of 1933
B)Section 12 of the Securities Act of 1934
C)Section 13 of the Securities Act of 1935
D)Section 11 of the Securities Act of 1933
E)Section 10 of the Securities Act of 1934

Question 49

As set forth in the case in the text,Bily v.Arthur Young & Co. ,which of the following is true regarding auditor liability to third parties under the Restatement rule?

A)An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes a duty only to directors of the company who provide loans to the company.
B)An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose does undertake a duty to any foreseeable third party users.
C)An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose undertakes a duty only to third parties who are financial institutions.
D)An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties except for financial institutions and also directors who provide loans to a company.
E)An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties.

Question 50

Which of the following is true regarding any affirmative defenses available under Section 20a)of the Securities Exchange Act?

A)Comparative negligence is an affirmative defense.
B)Comparative negligence and contributory negligence are affirmative defenses,and also an affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
C)An affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
D)There are no affirmative defenses available.
E)Contributory negligence is an affirmative defense.

Question 51

For which of the following does the Securities Exchange Act impose liability?

A)Negligence in performing an audit or in the construction of a financial statement.
B)Fraudulent statements made to courts.
C)Fraudulent statements made to a client in connection with performing an audit.
D)Fraudulent statements made to the SEC.
E)Fraud in performing an audit.

Question 52

If Andrew engaged in breach,he is not entitled to compensation for work completed.

A)A material
B)A substantial
C)Any type of
D)A comprehensive
E)An adequate

Question 53

Which of the following would be available to Dominique,assuming that she can establish that Andrew failed to meet his contractual obligations?

A)Reasonable and foreseeable damages related to the breach and damages for fraud which would be presumed.
B)Only a recovery for the cost of obtaining a different accountant to perform breached contractual duties.
C)Nothing unless the contact specifically provides for damages in the event of a breach.
D)Reasonable and foreseeable damages related to the breach excluding the cost of another accountant to perform breached contractual duties.
E)The cost of obtaining a different accountant to perform breached contractual duties and also any reasonable and foreseeable damages related to the breach.

Question 54

Which of the following standards is used in applying the reasonably foreseeable users test regarding accountant liability to third-parties?

A)Fraud
B)Negligence
C)Privity
D)Breach of contract
E)Strict product liability

Question 55

Which of the following requires accountants to use adequate procedures so that they can detect illegal acts committed by an audited company?

A)The Private Securities Litigation Reform Act
B)The Fraud and Illegality Deterrence Act
C)The Public Securities Auditing Reform Act
D)The Accountant Crime Deterrence Act
E)The Public Detection Act

Question 56

Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information?

A)A plaintiff must prove reliance on the registration statement.
B)The plaintiff must establish reliance on the financial statement,privity with the accountant,and also that the securities were purchased in an initial public offering.
C)A plaintiff must prove privity with the accountant at issue.
D)The plaintiff does not have to prove reliance on the financial statement nor must the plaintiff prove contractual privity.
E)The plaintiff must establish reliance and privity.

Question 57

Andrew may be entitled to complete compensation minus the amount of damages caused by the breach if he performed on the contract.

A)Substantially
B)Materially
C)Completely
D)Adequately
E)Partially

Question 58

Under the Sarbanes-Oxley Act,what are the penalties for willful violation of the section requiring the retention of working papers?

A)Accountants may be fined but not imprisoned.
B)Accountants may be fined,imprisoned for up to five years,or both.
C)There are no penalties because the Sarbanes-Oxley Act does not require the retention of working papers.
D)Accountants may be fined,imprisoned for up to ten years,or both.
E)Accountants may be fined or imprisoned for up to ten years,but not both.

Question 59

Which statement accurately describes the requirements regarding working papers under the Sarbanes-Oxley Act of 2002?

A)Accountants must maintain working papers for ten years starting with the end of the fiscal period in which the audit was conducted.
B)The act does not require that accountants maintain working papers.
C)Accountants must maintain working papers for five years starting with the end of the fiscal period in which the audit was conducted.
D)Accountants must maintain working papers for one year starting on the last day of the audit.
E)Accountants must maintain working papers for seven years starting on the last day of the audit.

Question 60

Which of the following is false regarding the Private Securities Litigation Reform Act?

A)In the event of a willful violation of the act,the SEC can seek an injunction against the accountant.
B)Under the act,an accountant's silence when the accountant thinks he or she might have discovered fraud is enough to constitute aiding and abetting.
C)The act sets forth a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity when conducting an audit.
D)The act states that accountants are liable for the portion of the damages for which they are responsible.
E)The act makes no reference to notifying the SEC of wrongdoing although it does reference notifying the applicable company's board of directors.

Question 61

Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding the effort by Bank XYZ to recover against Amina based upon Maggie's default?

A)The bank will be able to recover because it was in privity with Maggie,and Maggie was in privity with Amina.
B)The bank will not be able to recover because it cannot establish reliance upon Amina's work.
C)The bank will be able to recover because it was in privity with Amina.
D)The bank will be able to recover because Amina was aware that her audit would be used to obtain a loan.
E)The bank will not be able to recover because Amina and Maggie had specifically agreed that the audit would only be used to obtain a loan from Maggie's uncle.

Question 62

Under most professional indemnity insurance policies,which of the following must be true in order for a claim to be covered?

A)A policyholder must be insured at the time the claim arose or at the time the claim is filed.
B)A policyholder must be insured at the time the claim arose,but does not need to be insured at the time the claim is filed.
C)A policyholder must be insured at the time the claim is filed,but does not need to be insured at the time the claim arose.
D)A policyholder need only show evidence of current payment of policy premiums.
E)A policyholder must be insured at the time the claim arose and at the time the claim is filed.

Question 63

Javier claims that he should not be liable for negligence because Sami committed fraud.Is he correct?

A)No,but only if he violated a statute.
B)Yes,because he was not aware of Sami's conduct.
C)No,because he failed to detect fraud that a normal audit would have uncovered.
D)Yes.
E)Yes,because Sami's conduct was not reasonably foreseeable.

Question 64

Which of the following is not a requirement in order to recover damages under Section 10b)of the Securities Exchange Act of 1934 and the corresponding SEC Rule 10b-5?

A)Privity.
B)Reliance on the statement as the cause of the plaintiff's loss.
C)Reliance on the fraudulent statement.
D)Fraudulent act or deception.
E)Scienter.

Question 65

If Javier is sued for malpractice,would his new policy likely protect him?

A)No,because insurance does not cover mistakes made by professionals.
B)Yes,because he was insured at the time the claim was filed.
C)Yes,because it is a professional indemnity insurance policy.
D)No,because he was not insured at the time the claim arose.
E)No,because professional indemnity policies do not usually cover malpractice.

Question 66

Under which of the following circumstances would the attorney-client privilege apply to an accountant?

A)When the attorney refers the client to seek the accountant's advice about a legal matter.
B)When only accounting service is sought.
C)When an accountant meets privately with the client for the purpose of obtaining legal advice from the lawyer.
D)When the accountant is also an attorney.
E)When the client seeks the accountant's advice about a legal matter.

Question 67

[Sami's Coffee Shop] Javier,a new accountant who just opened his accounting firm,contracted with LittleBank to engage in accounting work for approval of loan applications.One of the applications was from Sami,owner of Sami's Coffee Shop.Sami provided Javier with copies of her income and loss statements.While looking through Sami's documents,Javier noticed multiple payments in large amounts for items listed only as "inventory" or "miscellaneous office supplies",which was odd since Sami told him the Coffee Shop served only coffee and tea.Javier did not ask Sami about the discrepancy because Sami seemed like an honest person.Javier completed the audit and prepared an opinion letter to LittleBank stating that Sami's Coffee Shop was in excellent financial condition and should feel confident in approving Sami's loan.The letter included a broad,general disclaimer.After sending the letter,Javier procured professional indemnity insurance to protect him from any malpractice claim.A month later,Sami was arrested for selling stolen jewelry from her shop and she defaulted on the loan.
Under what theory could LittleBank sue Javier?

A)None,because Sami's conduct was not reasonably foreseeable.
B)None,because Sami,not Javier,engaged in fraud.
C)Strict liability.
D)Fraud,because there is evidence of Javier's wrongful intent.
E)Negligence,because Javier failed to exercise the care of a competent,reasonable professional.

Question 68

[Prenuptial Agreement] Norah performed accounting services for Joel's used car business.She had a contract with Joel to the effect that she would audit his books and financial statements for his own use,not for the purpose of obtaining loans.In auditing Joel's business,she developed various notes,calculations,memorandums,and other papers.Gloria,Joel's fiancé,approached Norah to inquire about Joel's business.Gloria and Norah had been friends for many years.Norah allowed Gloria to look at the various notes,calculations,and other papers resulting from her review of Joel's financial statements and other records.Gloria told Norah that she really needed to investigate Joel because they were thinking of getting married,and she believed he had a legal obligation to disclose the information to her because of negotiations involving a prenuptial agreement.Norah agreed and proceeded to discuss Joel's finances with Gloria,revealing all the information that Joel had disclosed to her.Gloria broke up with Joel,telling him that after what she discovered from Norah,she was concerned about Joel's finances.Joel was very angry with Norah and told her that she was unethical and had violated the accountant-client privilege.
The notes,calculations,memorandums,and similar documents that Norah developed in her review of Joel's financial statements are called which of the following?

A)Working papers.
B)Consultation papers.
C)Review papers.
D)Analysis papers.
E)Computation papers.

Question 69

[Unaudited financial statements] ABC Company hires Abe,an accountant,to create financial statements.Abe creates the financial statements without using general accounting procedures and clearly marks the statements as "unaudited".
Could Abe be liable for the contents of the financial statements?

A)No,because accountants are not liable for the contents of unaudited financial statements.
B)Yes because he was negligent.
C)No,if he inserted a broad and general disclaimer on the financial statements
D)Yes,because he did not follow GAAP.
E)Yes,but only for the areas of the document that did not include GAAP.

Question 70

If Kayla is called to testify at trial,would she likely be required to reveal information about Carter's financial statements?

A)No,because federal law recognizes the accountant-client privilege.
B)No,because of the attorney-client privilege.
C)Yes,because no accountant-client privilege exists and the attorney-client privilege does not apply because Kayla is not an attorney.
D)Yes,because no accountant-client privilege exists.
E)Yes,because the communication was not made in confidence for the purpose of obtaining legal advice from the attorney.

Question 71

If Kayla is called to testify at trial,would she likely be required to reveal information about Carter's remarks at the baseball game?

A)Yes,because no accountant-client privilege exists and the attorney-client privilege does not apply because Kayla is not an attorney.
B)Yes,because no accountant-client privilege exists.
C)No,because federal law recognizes the accountant-client privilege.
D)Yes,because the communication was not made in confidence for the purpose of obtaining legal advice from the attorney.
E)No,because of the attorney-client privilege.

Question 72

Regarding Joel's assertion that Norah violated the accountant-client privilege,which statement is accurate?

A)Joel was correct because the accountant-client privilege is recognized in all states through statutory law.
B)Joel was incorrect because there is no an accountant-client privilege in any state.
C)Joel was correct since the accountant-client privilege exists in all states through common law.
D)Joel was correct because the accountant-client privilege is recognized by federal law.
E)More information is needed in order to know if Joel is correct because the accountant-client privilege is recognized in some states,but not in all states.

Question 73

Does the attorney-client privilege apply to accountants?

A)Yes,but only if the accountant is also an attorney.
B)Yes,all communication between accountant and client is protected by the attorney-client privilege.
C)No,because accountants have the accountant-client privilege.
D)No,because attorneys do not need accountants in order to represent their client.
E)Yes,if the communication between accountant and client is made in confidence for the purpose of obtaining legal advice from the attorney.

Question 74

Does Javier's disclaimer in his opinion letter protect him from liability?

A)Yes,as long as the disclaimer was part of the opinion letter.
B)Yes,because a qualification will limit liability.
C)No,because the disclaimer is broad and general.
D)Yes,but only if he properly applied GAAP and GAAS.
E)Yes,because a disclaimer protects an accountant from liability based on failure to detect fraud.

Question 75

What is Norah's contract with Joel to do audit work for him called?

A)Audit affirmation letter
B)Absolute contract
C)Retention contract
D)Preview contract
E)Engagement letter

Question 76

Which of the following,if true,would likely persuade a judge to require Kayla to testify about Carter's financial statements?

A)Kayla met with Carter at Rudy's direction.
B)Kayla's meeting with Carter occurred before Rudy was involved in Carter's case.
C)Carter provided Kayla with a factual background of the case.
D)Kayla provided accounting services to Carter.
E)Kayla provided legal advice to Carter.

Question 77

[Carter's financials] Kayla works as an accountant.Rudy,an attorney,is working on a case for Carter,who is suing his business partner.Rudy does not have the time or the background to perform a complete analysis of Carter's financial statements,so Rudy asks Kayla to meet with Carter and assist Rudy with interpreting Carter's financial statements.Kayla meets with Carter,who provides a lengthy explanation of the financial statements and facts of the case.Afterwards,she prepares a memorandum for Rudy outlining her analysis of the financial issues of the case.Kayla runs into Carter at a baseball game several months later.Carter tells her that the stress is getting to him and he wants to move to Florida because he can no longer tolerate his business partner.A year later,at trial,Kayla is called as a witness by Carter's business partner to testify against Carter.Noaccountant-client privilege exists in Kayla's state,which is also where the trial takes place.
If Kayla is called to testify at trial,what is her best argument against revealing information about Carter's financial statements?

A)Although accountant-client privilege does not exist in her state,federal law recognizes it.
B)Revealing the requested information would be malpractice.
C)The financial statements are confidential working papers.
D)The attorney-client privilege.
E)She has an ethical duty to keep the information confidential.

Question 78

Assuming that Norah discussed with Gloria confidential communications that she had with Joel,which of the following is true regarding the ethical nature of that communication?

A)Regardless of whether a state law existed providing an accountant-client privilege,federal statutory law deems such conduct unethical.
B)Norah did not commit an ethical violation in disclosing information to Gloria unless there was a state law providing for an accountant-client privilege.
C)Norah committed an ethical violation.
D)Norah committed an ethical violation but only because Gloria was not yet married to Joel.
E)Norah did not commit an ethical violation because negotiations regarding a prenuptial agreement were involved.

Question 79

Which of the following is true about professional indemnity insurance?

A)It provides coverage in the event that a professional is sued for failing to live up to his or her professional responsibilities.
B)It does not cover malpractice claims.
C)Professionals who might be subject to malpractice claims usually do not purchase professional indemnity insurance.
D)It provides coverage in the event that a professional is sued for malpractice,but not for failing to live up to his or her professional responsibilities.
E)Doctors,lawyers,and accountants may purchase this type of insurance,but not other professionals.

Question 80

Are there any circumstances under which Abe could be held liable for the contents of the unaudited financial statements?

A)Yes if liability is reasonably foreseeable.
B)No,accountants are not liable for the contents of unaudited financial statements.
C)No,if Abe included an opinion letter with a qualification.
D)Yes,if Abe failed to clearly mark the financial statements as being unaudited.
E)No,if Abe included an opinion letter with a broad and general disclaimer.