Exam 40: Accountants' Liability

Compliance with GAAPs and GAASs automatically relieve accountants of negligence liability.

Actual fraud occurs when an accountant acts with "reckless disregard" for the truth or the consequences of his or her actions.

Limited partners are personally liable for the debts and obligations of the LLP.

If a certified public accountant knowingly and intentionally performs a fraudulent audit of a company,the accountant will most probably be liable to:

Belle and Company,Inc.,a public accounting firm,has been engaged by Starr Associates to prepare an audit.After the audit is prepared,Starr uses it,along with an unqualified opinion letter,to secure a large commercial loan.During the preparation of the audit,Belle failed to properly represent Starr's true financial condition,and soon after the loan is secured,Starr defaults.Is Belle liable to the bank? If the bank sues Belle,under which theories of liability will Belle be liable,if any?

If an accountant engages in actual or constructive fraud,a third party that relies on the accountant's fraud and is injured thereby may bring a tort action against the accountant to recover damages.

The Securities and Exchange Commission permits a company to obtain an audit from either an independent certified public accountant or a certified public accountant who works for the company.

An accountant's failure to follow GAASs when conducting audits constitutes a felony.

Constructive fraud is defined as intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damages.

Which of the following pleadings and procedural requirements make it more difficult to bring class-action securities lawsuits?

All states have enacted statutes creating an accountant-client privilege.

Accountants can assert a due diligence defense under Section 11(a)of the Securities Act of 1933.

In terms of an accountant's liability for breach of a contract with a client,courts generally consider damages to be the expenses the client incurs in securing another accountant to perform the needed services,as well as any fines or penalties incurred by the client for missed deadlines and lost opportunities.

An auditor's opinion may be conditional,unconditional,or reserved.

An unqualified opinion is the least favorable opinion an auditor can give.

Kathy,a certified public accountant,prepares a registration statement on behalf of Kyoung,Inc.Kyoung provides financial information to Kathy that is inaccurate.Kathy investigates the information and recognizes a number of problems,which she shares with Kyoung.The registration statement contains corrected financial information.Kathy's investigation,however,was not reasonable,and it fails to reveal some material facts Kyoung concealed,which results in a misrepresentation of the true condition of the company.If someone purchases stock in the company and suffers a loss,what is the liability of Kathy and Kyoung,Inc.?

Bob and Company,Inc.,a public accounting firm,has been performing audit work for Slick Willey's Art House for years.Despite making thorough investigations of the financial information provided by Slick Willey's,Bob and Company,Inc.has failed to uncover the fact that Slick Willey's' was laundering money for organized crime.The United States Justice Department has filed RICO charges against both Slick Willey's and Bob and Company,Inc.Can Bob and Company,Inc.be liable for a violation of RICO?

Registered accounting firms that audit more than one hundred (100)public companies annually are subject to inspection and review by the Public Company Accounting Oversight Board (PCAOB).

Punitive damages are not recoverable in cases of actual fraud.

Pursuant to the Sarbanes-Oxley Act,if a public accounting firm audits a public company,the accounting firm may also provide bookkeeping services to the company.