Exam 44: Accountants Legal Liability

What is the basis for an accountant's potential criminal liability in rendering professional services?

For negligence cases,the Restatement has adopted the requirement of privity as set forth in the landmark opinion of Judge Cardozo in Ultramares Corp.v.Touche.

An accountant has no liability to third parties other than the client.

Wurst & Wurst is the accounting firm that has been used by the Intercontinental Bank for over twenty years.Ben approached Alfred,a Wurst partner,at a cocktail party.Ben asked about the Bank's stability.Although Alfred knew that the bank's stock was overvalued because of some loans to third world countries,he felt a considerable amount of loyalty to the bank for being a good customer of his accounting firm.Alfred told Ben that Wurst had just finished an audit of the bank,and that the bank was as sound as the Rock of Gibraltar.The next day Ben bought 1,000 shares of Intercontinental.One month later,the bank's losses became the subject of a major financial scandal.Ben is angry and wants to sue.Does Ben have a case?

A tax client wishing to defer income he earned this year asks his accountant to misstate information on his tax return.If the accountant does so,she may be subject to fines and up to five years in prison.

An accountant who commits fraud may be held liable for compensatory,but not punitive,damages.

Which of the following would NOT constitute scienter contributing to liability under Rule 10b-5?

Henry prepared a registration for the first issuance of stock of the Winzell Corporation.Henry took the assignment very seriously and spent a great deal of time preparing the statement.Two years after the statement was filed,the SEC began to investigate the company and claims that the information in Henry's statement was misleading,because some of the information given to him by the corporation was false.Henry had tried to verify the information,but was not able to do so.An investor is now suing Henry claiming that he violated the 1933 act.Is Henry liable?

Accountants would be subject to criminal liability where they:

Which of the following can be the basis for an accountant's liability under state law?

An accountant's legal responsibility under state law may be based upon:

Audit working papers would include all but:

Criminal sanctions for accountants are limited to punitive fines.

Shane agrees to perform an audit for ShowCo within 30 days,knowing that time is of the essence.When the 30 days are up,Shane has only performed 60% of the audit.Shane has materially breached his contract with ShowCo.

An accountant's legal liability is imposed both by the common law at the state level and by securities laws at the federal level.

In most statutes granting an accountant-client privilege,it belongs to the client and not to the accountant.

An accountant has a duty to comply with court orders,client requests,and Generally Accepted Auditing Standards with regards to disclosure of a client's confidential information.

Most courts allow an accountant to raise the defense of the plaintiff's contributory or comparative negligence.

An accountant can ethically disclose a client's confidential information if the accountant complies with:

Sara holds 1,000 shares of stock in Olive,Inc. ,which she purchased,based upon the financial statements that Adam had prepared.She now realizes that the statements were false and wants to sue Adam for common law fraud.What is Adam's best defense?