Question 1

The Ultramares case involved the liability of an accountant under the Securities Act of 1933.

Accepted Answer

A) True 
 B)False  False

Question 2

Accountants authorized under federal law to practice before the IRS have the privilege of confidentiality for tax advice given to their client-taxpayers with respect to Internal Revenue Code matters.

Accepted Answer

A) True 
 B)False  True

Question 3

Identify three ways the Sarbanes-Oxley Act affects accountants and auditors.

Accepted Answer

Three ways the Sarbanes-Oxley Act affects accountants and auditors are: (a)The Act provides for the establishment of a five-member Public Company Accounting Oversight Board to oversee the audit of public companies.The purpose is to further the public interest in the preparation of informative,accurate,and independent audit reports for public companies.(b)In order to make auditors more independent from their clients,the Act prohibits accounting firms from performing eight specified non-audit services for audit clients.Also,the lead audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit must rotate at least every five years.(c)Auditors must report directly to the company's audit committee and make timely disclosure of accounting issues concerning critical accounting policies and practices used in the audit,alternative treatments and their ramifications,and other material written communications between the auditor and management.

Question 4

The Sarbanes-Oxley Act prohibits accounting firms from performing which of the following additional services for audit clients?

Accepted Answer

A)  Bookkeeping 
B)  Implementing financial information systems 
C)  Actuarial services 
D)  All of these 
A)  Bookkeeping 
B)  Implementing financial information systems 
C)  Actuarial services 
D)  All of these

Question 5

Willa has a contract to perform accounting services for Entollo Corporation.She breaches her contract in a nonmaterial way.Which of the following is correct with respect to Willa's right to be paid for her work?

Accepted Answer

A)  Willa is not entitled to any compensation for her services. 
B)  Willa will be paid only if her contract does not specify that it is a "satisfaction" contract. 
C)  Willa is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D)  Willa is entitled to full compensation since the breach is nonmaterial. 
A)  Willa is not entitled to any compensation for her services. 
B)  Willa will be paid only if her contract does not specify that it is a "satisfaction" contract. 
C)  Willa is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D)  Willa is entitled to full compensation since the breach is nonmaterial.

Question 6

The historic Ultramares doctrine is still the standard followed by most modern courts in deciding cases of accountants' liability.

Accepted Answer

A) True 
 B)False

Question 7

An accountant-client privilege is statutorily recognized in some states and would generally permit the accountant to refuse to disclose confidential information gleaned from his client.

Accepted Answer

A) True 
 B)False

Question 8

Under the majority view and the Restatement test for determining liability,negligence of an accountant in conducting an audit may result in damage awards to potential investors.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct with regard to an accountant's contractual liability?

Accepted Answer

A)  An accountant is bound to perform all the duties she explicitly agrees to perform 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary 
D)  All of these are correct. 
A)  An accountant is bound to perform all the duties she explicitly agrees to perform 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary 
D)  All of these are correct.

Question 10

The accountant-client privilege is recognized:

Accepted Answer

A)  only in federal court proceedings. 
B)  by virtue of the common law in most states. 
C)  only in those states that have enacted statutes creating such a privilege. 
D)  in most states by reason of court decisions. 
A)  only in federal court proceedings. 
B)  by virtue of the common law in most states. 
C)  only in those states that have enacted statutes creating such a privilege. 
D)  in most states by reason of court decisions.

Question 11

A group of investors bring a class action lawsuit against the H & R Accounting Firm under SEC Rule 10b-5 of the 1934 Securities Act.Richard,an accountant with the firm,had prepared financial reports filed with the SEC for the Paymark Company.The reports contained false information of a material fact,and this led to financial loss to the investors who relied on the reports.What is the likely result of the suit?

Accepted Answer

In general,accountants may be held civil

Question 12

An implied agreement in the contractual relationship is the agreement by the accountant to act in a competent and professional manner.

Accepted Answer

A) True 
 B)False

Question 13

In providing services for his client,an accountant obtains information concerning the client's business affairs.What are the legal issues concerning this client information?

Accepted Answer

The legal issues concerning th

Question 14

Zander decides to invest in the stock of Wolf Enterprises after he reads Edgar's audit,which includes a statement,known by Edgar to be false,as to the value of numerous worthless securities held as corporate assets.If Zander sues Edgar in a state using the broadest test for determining an accountant's liability for negligence to third parties,he will be entitled to:

Accepted Answer

A)  nothing,since he is an incidental beneficiary of the audit contract. 
B)  damages if he is a reasonably foreseeable plaintiff. 
C)  have Edgar complete a new audit. 
D)  rescission of his purchase contract. 
A)  nothing,since he is an incidental beneficiary of the audit contract. 
B)  damages if he is a reasonably foreseeable plaintiff. 
C)  have Edgar complete a new audit. 
D)  rescission of his purchase contract.

Question 15

An accountant who willfully violates Section 11 of the 1933 Securities Act will be subject to criminal liability.

Accepted Answer

A) True 
 B)False

Question 16

Under the Private Securities Litigation Reform Act of 1995,those who audit financial statements required by the 1934 Securities Exchange Act must establish procedures capable of:

Accepted Answer

A)  detecting material illegal acts. 
B)  identifying material related to party transactions. 
C)  evaluating whether there is a substantial doubt about the issuer's ability to continue as a going concern during the next fiscal year. 
D)  All of these. 
A)  detecting material illegal acts. 
B)  identifying material related to party transactions. 
C)  evaluating whether there is a substantial doubt about the issuer's ability to continue as a going concern during the next fiscal year. 
D)  All of these.

Question 17

Historically,privity of contract was not a requirement for a cause of action based on an accountant's liability for negligence.

Accepted Answer

A) True 
 B)False

Question 18

What are the requisite elements of fraud?

Accepted Answer

The requisite elements of fraud include:

Question 19

An accountant's records,including the data-gathering process followed and the information and conclusions drawn therefrom are known as:

Accepted Answer

A)  tax returns. 
B)  working papers. 
C)  rough drafts. 
D)  privileged communication. 
A)  tax returns. 
B)  working papers. 
C)  rough drafts. 
D)  privileged communication.

Question 20

An accountant cannot be compelled to disclose the contents of his working papers,even under a court order.

Accepted Answer

A) True 
 B)False

Exam 44: Accountants Legal Liability

The Ultramares case involved the liability of an accountant under the Securities Act of 1933.

Accountants authorized under federal law to practice before the IRS have the privilege of confidentiality for tax advice given to their client-taxpayers with respect to Internal Revenue Code matters.

Identify three ways the Sarbanes-Oxley Act affects accountants and auditors.

The Sarbanes-Oxley Act prohibits accounting firms from performing which of the following additional services for audit clients?

Willa has a contract to perform accounting services for Entollo Corporation.She breaches her contract in a nonmaterial way.Which of the following is correct with respect to Willa's right to be paid for her work?

The historic Ultramares doctrine is still the standard followed by most modern courts in deciding cases of accountants' liability.

An accountant-client privilege is statutorily recognized in some states and would generally permit the accountant to refuse to disclose confidential information gleaned from his client.

Under the majority view and the Restatement test for determining liability,negligence of an accountant in conducting an audit may result in damage awards to potential investors.

Which of the following is correct with regard to an accountant's contractual liability?

The accountant-client privilege is recognized:

An implied agreement in the contractual relationship is the agreement by the accountant to act in a competent and professional manner.

In providing services for his client,an accountant obtains information concerning the client's business affairs.What are the legal issues concerning this client information?

An accountant who willfully violates Section 11 of the 1933 Securities Act will be subject to criminal liability.

Under the Private Securities Litigation Reform Act of 1995,those who audit financial statements required by the 1934 Securities Exchange Act must establish procedures capable of:

Historically,privity of contract was not a requirement for a cause of action based on an accountant's liability for negligence.

What are the requisite elements of fraud?

An accountant's records,including the data-gathering process followed and the information and conclusions drawn therefrom are known as:

An accountant cannot be compelled to disclose the contents of his working papers,even under a court order.

Introduction to Law

Business Ethics and the Social Responsibility of Business

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Third Parties to Contracts

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Introduction to Sales and Leases

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Products Liability: Warranties and Strict Liability in Tort

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Transfer and Holder in Due Course

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Formation and Internal Relations of General Partnerships

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Exploring the Legal Concepts of Agency and Fiduciary Duty

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Understanding the Terminology of Banking and Finance: Key Concepts and Definitions

Exploring Legal Concepts and Processes in Business Partnerships

Understanding Corporate Law: A Guide to Ultra Vires Acts, Subscribers, Debt Securities, and More

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