Exam 51: Accountants' Liability

An accountant is liable for constructive fraud when the accountant acts with a reckless disregard for his actions.

A plaintiff in an action under Section 11 of the Securities Act of 1933 must prove that she relied on the misstatement of an accountant in order to recover.

Accountants' working papers are protected from discovery in federal court cases.

Under the Restatement (Second)of Torts standard,an accountant is liable to which third parties for negligence?

The rules of liability of accountants to third parties are essentially the same in all states.

A person who is not certified as an accountant is referred to as a private accountant.

The issuance by an auditor of something other than an unqualified opinion makes little difference to the overall company's financial position.

Under Section 11 of the Securities Act of 1933,an accountant cannot make use of the due diligence defense.

Is it fair that a nationwide standard of care generally applies to the duty of care of accountants? Is it fair to hold the small town practitioner to the same standard as a large CPA firm in a large city?

When an accountant has conducted an audit with reckless disregard for the accuracy of the financial statements,the accountant has committed:

Gretchen,a Certified Public Accountant,was hired by a retail hardware store to perform an audit on the store's financial statements.In the agreement for this engagement was a clause stating that the audited financial statements would be used "to renew the inventory financing line of credit from Third National Bank." Gretchen completed the audit and issued an unqualified opinion.The client obtained the financing from Third National Bank.Unfortunately,Gretchen had been negligent in conducting the audit,and the inventory had been greatly overstated.As a result,there was inadequate collateral for the loan,and when the hardware store went bankrupt a few months later,Third National Bank suffered a loss.Under which of the rules for an accountant's liability to third parties could Third National Bank recover from Gretchen?

Most public accounting firms are organized and operated as a limited liability partnership.

The due diligence defense is a broad defense available to an accountant for a claim under rule 10b-5 of the Securities Exchange Act of 1934.

An accountant is liable for negligence only to those parties in a limited class of intended users under which standard of accountant liability to third parties?

Accountants can generally be held liable to more parties on a fraud theory than on a breach of contract theory.

The Restatement (Second)of Torts in part provides that accountants are liable to any member of a limited class of intended users for whose benefit the accountant has been employed to prepare the client's financial statements.

An accountant is liable for negligence only to third parties with whom the accountant is in privity or in a privity-like relationship under which standard of liability?

The Racketeer Influenced and Corrupt Organizations Act provides for both civil and criminal actions against accountants who violate its provisions.

A client may seek damages for the expenses he or she incurred in securing another accountant if the initial accountant he or she hired failed to perform under the terms of the parties' original agreement.

The term privity refers to parties being in a contractual relationship with one another.