Question 1

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.

Accepted Answer

A) True 
 B)False

Question 2

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Accepted Answer

A)  Bell to pay the amount of the fine as damages to the firm. 
B)  Bell to meet the next deadline but not to pay damages. 
C)  Consumer Staples to drop its suit and pay its fine. 
D)  Consumer Staples to secure another professional to finish the work. 
A)  Bell to pay the amount of the fine as damages to the firm. 
B)  Bell to meet the next deadline but not to pay damages. 
C)  Consumer Staples to drop its suit and pay its fine. 
D)  Consumer Staples to secure another professional to finish the work.

Question 3

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Accepted Answer

A)  misstatement of a material fact. 
B)  intent to deceive. 
C)  justifiable reliance. 
D)  an injury. 
A)  misstatement of a material fact. 
B)  intent to deceive. 
C)  justifiable reliance. 
D)  an injury.

Question 4

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

Accepted Answer

A)  only the purchase and sale of a security. 
B)  fraud, reliance, materiality, and lack of knowledge about securities. 
C)  fraud, reliance, materiality, and incompetence. 
D)  fraud, reliance, materiality, causation, and scienter. 
A)  only the purchase and sale of a security. 
B)  fraud, reliance, materiality, and lack of knowledge about securities. 
C)  fraud, reliance, materiality, and incompetence. 
D)  fraud, reliance, materiality, causation, and scienter.

Question 5

Sims, an accountant, prepares for Taco Corporation a financial statement that omits a material fact. The financial statement is included in Taco's registration statement, which Uri reads. Uri buys Taco stock. Under Section 11 of the Securities Act of 1933, for Sims to be liable for the omission, Uri must show that he

Accepted Answer

A)  relied on the omission. 
B)  suffered a loss on the stock. 
C)  knew about the omission before making the purchase. 
D)  is a sophisticated investor. 
A)  relied on the omission. 
B)  suffered a loss on the stock. 
C)  knew about the omission before making the purchase. 
D)  is a sophisticated investor.

Question 6

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

Accepted Answer

A)  bookkeeping. 
B)  none of the choices. 
C)  appraisal services. 
D)  financial systems design. 
A)  bookkeeping. 
B)  none of the choices. 
C)  appraisal services. 
D)  financial systems design.

Question 7

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Accepted Answer

A) True 
 B)False

Question 8

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

Accepted Answer

A) True 
 B)False

Question 9

Auto Company's liabilities exceed its assets. The firm hires Bass, an accountant, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Credit Bank relies on the document to make a loan to Auto. When the firm defaults, the bank files a suit against Bass. Under the Restatement (Third) of Torts, Bass is most likely

Accepted Answer

A)  liable because the accountant owed a duty to the client. 
B)  liable because the accountant owed a duty to any foreseeable user. 
C)  liable if the accountant knew the bank would rely on the balance sheet. 
D)  not liable because the accountant and the bank were not in privity. 
A)  liable because the accountant owed a duty to the client. 
B)  liable because the accountant owed a duty to any foreseeable user. 
C)  liable if the accountant knew the bank would rely on the balance sheet. 
D)  not liable because the accountant and the bank were not in privity.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An accountant is least likely to be held liable for accounting fraud if he or she

Accepted Answer

A)  uncovers suspicious financial transactions but does not inform the client. 
B)  fails to discover every impropriety in a client's books. 
C)  reports fictitious revenues in a client's financial statement. 
D)  conceals liabilities or debts, or artificially inflates assets, for a client. 
A)  uncovers suspicious financial transactions but does not inform the client. 
B)  fails to discover every impropriety in a client's books. 
C)  reports fictitious revenues in a client's financial statement. 
D)  conceals liabilities or debts, or artificially inflates assets, for a client.

Question 12

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

Accepted Answer

A) True 
 B)False

Exam 40: Liability of Accountants and Other Professionals

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

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

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

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

An accountant is least likely to be held liable for accounting fraud if he or she

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

Law and Legal Reasoning

Constitutional Law

Ethics in Business

Courts and Alternative Dispute Resolution

Tort Law

Product Liability

Intellectual Property Rights

Internet Law, Social Media, and Privacy

Criminal Law and Cyber Crime

Nature and Classification

Agreement

Consideration

Capacity and Legality

Voluntary Consent

The Statute of Fraudswriting Requirement

Performance and Discharge

Breach and Remedies

Third Party Rights

The Formation of Sales and Lease Contracts

Title and Risk of Loss

Performance and Breach of Sales and Lease Contracts

Negotiable Instruments

International and Space Law

Banking in the Digital Age

Security Interests and Creditors Rights

Bankruptcy

Agency Relationships in Business

Employment, Immigration, and Labor Law

Employment Discrimination

Sole Proprietorships and Franchises

All Forms of Partnership

Limited Liability Companies and Special Business Forms

Corporate Formation and Financing

Corporate Directors, Officers, and Shareholders

Corporate Mergers, Takeovers, and Termination

Investor Protection, Insider Trading, and Corporate Governance

Administrative Law

Antitrust Law and Promoting Competition

Consumer and Environmental Law

Personal Property and Bailments

Real Property and Landlord-Tenant Law

Insurance, Wills, and Trusts

Filters