Deck 48: A: Professional Liability and Accountability

Question 1

An accountant may be liable to anyone who acquires a security covered by a registration statement that contains a materially false statement.

Answer 1

True

Question 2

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Answer 2

True

Question 3

Professionals can limit their liability to some extent by disclaiming it.

Answer 3

True

Question 4

Attorneys are required to be familiar with well-settled principles of law applicable to a casa.

Question 5

An auditor must use adequate procedures in an audit to detect any ille?gal acts of the company being audited.

Question 6

Generally,an accountant must exercise the degree of care that an ordi?narily prudent accountant would exercise.

Question 7

In most courts,auditors cannot be held liable to third parties for negli?gence in the performance of their duties.

Question 8

Professionals are obligated to adhere to standards of performance com?monly accepted within their profession.

Question 9

A professional can be liable for fraud whether or not he or she acted with fraudulent intent.

Question 10

The Sarbanes-Oxley Act of 2002 applies only to foreign public accounting firms that provide auditing services to "issuers."

Question 11

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.

Question 12

A client's negligence is never a defense to a charge of negligence against an accountant.

Question 13

An accountant is not liable for a misleading statement that affects the price of a security if the accountant acted in good faith.

Question 14

Accountants and other professionals may not be held liable for negli?gence in the performance of their service.

Question 15

Generally,an attorney is not liable to a nonclient unless the attorney has committed fraud.

Question 16

Malpractice is professional negligence.

Question 17

Traditionally,a professional owed no duty to those with whom the pro?fessional had a direct contractual relationship.

Question 18

Under the Sarbanes-Oxley Act of 2002,accountants must retain working papers relating to an audit or review for a certain period of time.

Question 19

An accountant is required to discover every impropriety,defalcation,and fraud in a client's books.

Question 20

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

Question 21

Pluto accuses Quark,an accountant,of committing defalcation.This is

A)embezzlement.
B)general misconduct.
C)professional negligence.
D)throwing something out of a window.

Question 22

Filtration Products,Inc. ,files a suit against Emmett,its former account?ant,al?leging constructive fraud.Emmett may be held liable

A)if Filtration cannot prove actual fraud.
B)if Emmett was grossly negligent in the performance of his duties.
C)only if Emmett acted with fraudulent intent.
D)only if Emmett impersonated someone else who could be liable for fraud.

Question 23

Lara,an accountant,conducts an audit of Microstuff,Inc.After the con?clu?sion of the audit,the working papers created in preparing the audit must be

A)disposed of immediately.
B)kept until the Public Company Accounting Oversight Board's review.
C)maintained for seven years.
D)retained forever.

Question 24

Yves is an accountant charged with negli?gence by Zesty Soup Company,a client.Yves may successfully defend against the claim if he can show that

A)scienter was lacking.
B)he complied with all International Financial Reporting Standards.
C)the negligence was not the proximate cause of the client's losses.
D)the negligence was only contributory.

Question 25

Bryce's accountant is Caleb and his attorney is Delilah.All states pro?tect,as privileged information,Bryce's communications with

A)Caleb and Delilah.
B)Caleb only.
C)Delilah only.
D)neither Caleb nor Delilah.

Question 26

Hadley and Ilene are accountants who work together.Hadley and Ilene can limit their potential liability for each other's misconduct by organizing their business as

A)a limited liability partnership.
B)an unincorporated professional association.
C)an unofficial co-practice.
D)a sole proprietorship.

Question 27

Estes,an accountant,contracts to perform services for Frasier.In per?forming those services,Estes uncovers a suspicious financial transac?tion.Estes is most likely not liable if he

A)acted negligently in failing to discover the transaction sooner.
B)conceals the discovery and otherwise finishes the work.
C)investigates and reports the discovery to Frasier.
D)obtains restitution from the perpetrator without Frasier's knowledge.

Question 28

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

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

Question 29

Nina,an accountant,prepares for Omni Corporation a financial state?ment that misstates a material fact.The statement is included in Omni's regis?tration statement.Pete,who is in privity with Nina,and Quinn,who is not,each buy Omni stock.Under Section 11 of the Securities Act of 1933,Nina may be liable to

A)neither Pete nor Quinn.
B)Pete and Quinn.
C)Pete only.
D)Quinn only.

Question 30

Rex,an accountant,enters into a contract to provide services to Sofi.Rex does not finish the work within the contract's deadline.Sofi pays a pen?alty for the missed deadline and hires Trey to complete the job.Rex is most likely liable for

A)nothing.
B)Sofi's penalty and the cost to hire Trey.
C)Sofi's penalty only.
D)the cost to hire Trey only.

Question 31

Bruno is an accountant.Under the Sarbanes-Oxley Act of 2002,the de?gree of government oversight over the public accounting practices of Bruno and other accountants was

A)decreased.
B)increased.
C)eliminated.
D)unchanged.

Question 32

Meri,an accountant,includes a false statement in a report for Novelty Paper Products,Inc.(NPPI)that is filed with the Securities and Exchange Com?mission.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

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 33

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

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 34

Tony is an accountant whose clients include U-All Company.If Tony is negligent in his work for U-All,most courts would hold him liable to U-All and

A)any third party.
B)no third party.
C)third parties who are foreseen users of the work.
D)third parties who are reasonably foresee?able users of the work.

Question 35

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

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

Question 36

Quibble Company's liabilities exceed its assets.Quibble hires Roo & Slay,an accounting firm,to prepare a balance sheet.Through Roo & Slay's negligent omissions,the sheet shows a net worth.Town Bank re?lies on the balance sheet to make a loan to Quibble.When Quibble de?faults,Town files a suit against Roo & Slay.Under the Restatement rule,Roo & Slay is most likely

A)liable because Roo & Slay owed a duty of care to Quibble.
B)liable because Roo & Slay owed a duty to any foreseeable user.
C)liable if Roo & Slay knew that Town would rely on the balance sheet.
D)not liable because Roo & Slay and Town were not in privity.

Question 37

Lacy is an accountant who prepares her clients' tax returns.Muff 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

A)Lacy and Muff.
B)Lacy only.
C)Muff only.
D)neither Lacy nor Muff.

Question 38

Gert,an accountant,contracts to conduct an audit for Hailey.In per?forming the audit,Gert fails to detect certain misconduct.Gert is most likely

A)liable if a normal audit would have revealed the misconduct.
B)liable if Gert issues a specifically qualified opinion.
C)not liable if Gert generally disclaims any liability.
D)not liable if the misconduct was due to Hailey's negligence.

Question 39

Beth is an accountant with Consumer Sales Corporation.Doral buys Consumer stock and loses money on the investment.To recover from Beth under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,Doral must prove

A)none of the choices.
B)fraud and reliance only.
C)fraud,reliance,and materiality only.
D)scienter,fraud,reliance,materiality,and causation only.

Question 40

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

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)is embarrassing but will never subject Tiny to liability.

Question 41

Samantha is an accountant.Theo is an attorney.Which professional is most re?stricted from disclosing her or his client's communication?

Question 42

Dominique,a certified public accountant,provides accounting serv?ices to Eagle Corporation.The services include preparing Eagle's financial re?ports and issuing opinion letters based on the reports.In 2008,Eagle falls into serious financial trouble,but neither Dominique's reports nor her opinion let?ters indicate this situation.Relying on Dominique's por?trayal of Eagle's finan?cial situation,Eagle borrows a large sum of money to build a new ship?ping facility.In lending Eagle the money,First National Bank relies on Dominique's opinion letter.Dominique is aware of this reliance.If Dominique did not en?gage in intentional fraud but was negligent,what is her potential liability?