Question 1

The Sarbanes-Oxley Act was enacted in response to:

Accepted Answer

A)  accountants' requests for definitive guidelines for their profession. 
B)  business scandals involving companies such as Enron,WorldCom,and the Arthur Andersen accounting firm. 
C)  the need to lighten the oversight and enforcement responsibilities of the SEC. 
D)  the Ultramares Corporation v.Touche case. 
A)  accountants' requests for definitive guidelines for their profession. 
B)  business scandals involving companies such as Enron,WorldCom,and the Arthur Andersen accounting firm. 
C)  the need to lighten the oversight and enforcement responsibilities of the SEC. 
D)  the Ultramares Corporation v.Touche case.

Question 2

Baxsen,Inc.wanted to acquire the common stock of the Acme Corporation and hired Clark to audit the financial statements of Acme.Clark failed to discover a large embezzlement by Acme's chief financial officer.In a common law action by Baxsen against Clark,Baxsen must at a minimum prove:

Accepted Answer

A)  ordinary negligence on Clark's part. 
B)  gross negligence on Clark's part. 
C)  fraud on Clark's part. 
D)  scienter on Clark's part. 
A)  ordinary negligence on Clark's part. 
B)  gross negligence on Clark's part. 
C)  fraud on Clark's part. 
D)  scienter on Clark's part.

Question 3

An accountant's liability under the federal securities laws is basically the same as the liability at common law.

Accepted Answer

A) True 
 B)False

Question 4

Heather tells her accountant,"I must have this year's audit completed by March 1." The accountant agrees to complete the audit by March 1.Under general contract law,if the audit is not completed by March 1,Heather does not have to pay the accountant for the audit.

Accepted Answer

A) True 
 B)False

Question 5

Scienter is not a requirement for an accountant to be civilly liable under Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 6

The failure by an accountant to use the care of a reasonably competent accountant is:

Accepted Answer

A)  negligence. 
B)  material breach. 
C)  substantial performance. 
D)  fraud. 
A)  negligence. 
B)  material breach. 
C)  substantial performance. 
D)  fraud.

Question 7

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Accepted Answer

A)  Civil liability where there is scienter 
B)  Criminal liability where there is a willful violation 
C)  Both of these are correct. 
D)  Neither of these is correct. 
A)  Civil liability where there is scienter 
B)  Criminal liability where there is a willful violation 
C)  Both of these are correct. 
D)  Neither of these is correct.

Question 8

As a result of the Sarbanes-Oxley Act,the lead audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit must rotate at least every three years.

Accepted Answer

A) True 
 B)False

Question 9

If an auditor of financial statements required by the 1934 Act becomes aware of an illegal act,the auditor must:

Accepted Answer

A)  inform the issuer's management and make sure the audit committee or the board of directors is adequately informed. 
B)  notify the SEC within one day of discovering the illegal act. 
C)  resign if the issuer does not notify the SEC of the illegality within ten business days. 
D)  be subject to criminal penalties if the auditor willfully violates the Reform Act by not resigning or furnishing reports to the SEC. 
A)  inform the issuer's management and make sure the audit committee or the board of directors is adequately informed. 
B)  notify the SEC within one day of discovering the illegal act. 
C)  resign if the issuer does not notify the SEC of the illegality within ten business days. 
D)  be subject to criminal penalties if the auditor willfully violates the Reform Act by not resigning or furnishing reports to the SEC.

Question 10

An accountant who substantially performs his contractual duties under a contract with a client is entitled to compensation at the agreed upon rate less any damages he has caused the client.

Accepted Answer

A) True 
 B)False

Question 11

The client is generally held to be the owner of the working papers the accountant uses in performing an audit.

Accepted Answer

A) True 
 B)False

Question 12

Claire works for Mattco but owns no Mattco stock.She buys 10 shares of a new issue of company stock and afterward receives the signed registration statement,which contains an untrue statement of material fact.Because Claire works for Mattco,she recognizes the error.Can Claire sue the auditor?

Accepted Answer

A)  Yes,under Section 11,reliance is usually not required. 
B)  Yes,if she can prove she would not have bought the stock otherwise. 
C)  No,because she did not rely on the statement. 
D)  No,because there is no privity between Barbara and the auditor. 
A)  Yes,under Section 11,reliance is usually not required. 
B)  Yes,if she can prove she would not have bought the stock otherwise. 
C)  No,because she did not rely on the statement. 
D)  No,because there is no privity between Barbara and the auditor.

Question 13

Pam certified a statement prepared by Jace,her employee,without checking his work.Jace was never known to be anything but diligent and his integrity had never been questioned.The audit contained gross misstatements.Pam defends a suit against her claiming "due diligence." She will:

Accepted Answer

A)  succeed,since she had no reason to believe her employee would lie. 
B)  succeed,because a reasonable person would not have inquired further. 
C)  fail,because due diligence requires reasonable investigation. 
D)  fail,because she is automatically liable for her employee's act. 
A)  succeed,since she had no reason to believe her employee would lie. 
B)  succeed,because a reasonable person would not have inquired further. 
C)  fail,because due diligence requires reasonable investigation. 
D)  fail,because she is automatically liable for her employee's act.

Question 14

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Accepted Answer

A)  Privity and due diligence 
B)  Privity,but not due diligence 
C)  Due diligence,but not privity 
D)  Neither privity nor due diligence 
A)  Privity and due diligence 
B)  Privity,but not due diligence 
C)  Due diligence,but not privity 
D)  Neither privity nor due diligence

Question 15

Which of the following could give rise to an accountant's criminal liability?

Accepted Answer

A)  Falsely completing a tax return 
B)  Tampering with accounting records 
C)  Advising a client to falsely complete his own tax return 
D)  All of these could subject an accountant to criminal liability. 
A)  Falsely completing a tax return 
B)  Tampering with accounting records 
C)  Advising a client to falsely complete his own tax return 
D)  All of these could subject an accountant to criminal liability.

Question 16

An accountant who contractually promises to conduct an audit to detect possible embezzlement is under a contractual obligation to provide for the client an expanded audit beyond Generally Accepted Auditing Standards.

Accepted Answer

A) True 
 B)False

Question 17

The court's holding in Ultramares Corporation v.Touche:

Accepted Answer

A)  emancipates accountants from the consequences of fraud. 
B)  relieves accountants from liability for reckless misstatement. 
C)  establishes that an accountant's liability for negligence is limited to cases in which there is privity of contract. 
D)  shows no concern for exposure of accountants to liability in an indeterminate amount for an indeterminate time to an indeterminate class. 
A)  emancipates accountants from the consequences of fraud. 
B)  relieves accountants from liability for reckless misstatement. 
C)  establishes that an accountant's liability for negligence is limited to cases in which there is privity of contract. 
D)  shows no concern for exposure of accountants to liability in an indeterminate amount for an indeterminate time to an indeterminate class.

Question 18

In which of the following types of cases can issues of accountant-client confidentiality arise?

Accepted Answer

A)  Civil litigation 
B)  Criminal cases 
C)  Tax disputes 
D)  All of these are situations where it can arise. 
A)  Civil litigation 
B)  Criminal cases 
C)  Tax disputes 
D)  All of these are situations where it can arise.

Question 19

Which of the following is correct with respect to an accountant's working papers?

Accepted Answer

A)  The client is held to be the owner of an accountant's working papers. 
B)  An accountant must surrender his working papers to his client if the client so requests. 
C)  An accountant may not disclose the contents of his working papers unless the client consents or a court orders the disclosure. 
D)  All of these are correct. 
A)  The client is held to be the owner of an accountant's working papers. 
B)  An accountant must surrender his working papers to his client if the client so requests. 
C)  An accountant may not disclose the contents of his working papers unless the client consents or a court orders the disclosure. 
D)  All of these are correct.

Question 20

The common law recognizes an accountant-client privilege.

Accepted Answer

A) True 
 B)False

Exam 44: Accountants Legal Liability

The Sarbanes-Oxley Act was enacted in response to:

Baxsen,Inc.wanted to acquire the common stock of the Acme Corporation and hired Clark to audit the financial statements of Acme.Clark failed to discover a large embezzlement by Acme's chief financial officer.In a common law action by Baxsen against Clark,Baxsen must at a minimum prove:

An accountant's liability under the federal securities laws is basically the same as the liability at common law.

Heather tells her accountant,"I must have this year's audit completed by March 1." The accountant agrees to complete the audit by March 1.Under general contract law,if the audit is not completed by March 1,Heather does not have to pay the accountant for the audit.

Scienter is not a requirement for an accountant to be civilly liable under Rule 10b-5.

The failure by an accountant to use the care of a reasonably competent accountant is:

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

As a result of the Sarbanes-Oxley Act,the lead audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit must rotate at least every three years.

If an auditor of financial statements required by the 1934 Act becomes aware of an illegal act,the auditor must:

An accountant who substantially performs his contractual duties under a contract with a client is entitled to compensation at the agreed upon rate less any damages he has caused the client.

The client is generally held to be the owner of the working papers the accountant uses in performing an audit.

Claire works for Mattco but owns no Mattco stock.She buys 10 shares of a new issue of company stock and afterward receives the signed registration statement,which contains an untrue statement of material fact.Because Claire works for Mattco,she recognizes the error.Can Claire sue the auditor?

Pam certified a statement prepared by Jace,her employee,without checking his work.Jace was never known to be anything but diligent and his integrity had never been questioned.The audit contained gross misstatements.Pam defends a suit against her claiming "due diligence." She will:

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Which of the following could give rise to an accountant's criminal liability?

An accountant who contractually promises to conduct an audit to detect possible embezzlement is under a contractual obligation to provide for the client an expanded audit beyond Generally Accepted Auditing Standards.

The court's holding in Ultramares Corporation v.Touche:

In which of the following types of cases can issues of accountant-client confidentiality arise?

Which of the following is correct with respect to an accountant's working papers?

The common law recognizes an accountant-client privilege.

Introduction to Law

Business Ethics and the Social Responsibility of Business

Civil Dispute Resolution

Constitutional Law

Administrative Law

A: Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance,breach,and Discharge

Contract Remedies

Relationship of Principal and Agent

Relationship With Third Parties

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Products Liability: Warranties and Strict Liability in Tort

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits,collections,and Funds Transfers

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature,formation,and Powers

Financial Structure

Management Structure

Fundamental Changes

Secured Transactions and Suretyship

Bankruptcy

Protection of Intellectual Property

Antitrust

Consumer Protection Double

Employment Law

Securities Regulation

Environmental Law

International Business Law

Introduction to Property,property Insurance,bailments,and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Decedents Estates

Legal Terminology: Understanding Criminal and Civil Law Systems

Contract Law Terminology

Exploring the Legal Concepts of Agency and Fiduciary Duty

Understanding Key Legal Concepts in Sales and Contracts

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

Understanding Key Terms in Secured Transactions and Bankruptcy Law

Legal Topics and Terms