Question 1

The 1976 Tax Reform Act imposes civil liability on accountants and others who prepare federal tax returns.

Accepted Answer

A) True 
 B)False

Question 2

Elizabeth is an accountant in a small town in a rural western state.Elizabeth has performed an audit for a large agricultural cooperative in her town.The accountant who previously performed the audit died in the past year,and her working papers could not be found,so Elizabeth had a difficult time with the audit.There were some problems with the audit and the financial statements such that the local bank is not willing to renew the cooperative's line of credit.If the cooperative sues Elizabeth,what is most likely true about the duty of care imposed on Elizabeth?

Accepted Answer

A)  Elizabeth will be held to a duty of care based on an accountant practicing in a small rural town. 
B)  Elizabeth will be held to a lower standard of care because of the lack of access to the prior year's work papers. 
C)  Elizabeth will be held to the same general standard of care as accountants anywhere in the nation. 
D)  Elizabeth committed constructive fraud by proceeding with the audit without having the working papers from the prior year. 
A)  Elizabeth will be held to a duty of care based on an accountant practicing in a small rural town. 
B)  Elizabeth will be held to a lower standard of care because of the lack of access to the prior year's work papers. 
C)  Elizabeth will be held to the same general standard of care as accountants anywhere in the nation. 
D)  Elizabeth committed constructive fraud by proceeding with the audit without having the working papers from the prior year.

Question 3

Under the Ultramares decision,an accountant is liable only to those with whom the accountant is in privity of contract or a privity-like relationship.

Accepted Answer

A) True 
 B)False

Question 4

On which of the following theories under common law can an accountant be held liable to parties with whom the accountant is not in privity?

Accepted Answer

A)  breach of contract 
B)  fraud 
C)  breach of contract or fraud 
D)  neither breach of contract nor fraud 
A)  breach of contract 
B)  fraud 
C)  breach of contract or fraud 
D)  neither breach of contract nor fraud

Question 5

In the Ultramares case involving negligence of a CPA firm,the firm was not found liable as it was not in a contractual relationship with the plaintiff.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true about the accountant-client privilege?

Accepted Answer

A)  It applies in federal courts and all state courts. 
B)  It applies in all state courts,but not in federal court. 
C)  It applies in federal court and some state courts. 
D)  It applies in some state courts,but not in federal court. 
E)  It applies in federal court,but no state courts. 
A)  It applies in federal courts and all state courts. 
B)  It applies in all state courts,but not in federal court. 
C)  It applies in federal court and some state courts. 
D)  It applies in some state courts,but not in federal court. 
E)  It applies in federal court,but no state courts.

Question 7

The state law rule of liability of accountants for negligence to third parties that is most favorable to the accountant is:

Accepted Answer

A)  the Ultramares doctrine 
B)  the Restatement (Second) of Torts standard 
C)  the strict liability standard 
D)  the foreseeability standard 
A)  the Ultramares doctrine 
B)  the Restatement (Second) of Torts standard 
C)  the strict liability standard 
D)  the foreseeability standard

Question 8

Accountants are not liable for failing to find misstatements or omissions of facts in a registration statement.

Accepted Answer

A) True 
 B)False

Question 9

Ordinary negligence of an accountant will result in liability under Rule 10b-5 of the Securities Exchange Act of 1934.

Accepted Answer

A) True 
 B)False

Question 10

When an accountant has not followed generally accepted auditing standards,which of the following is true?

Accepted Answer

A)  The accountant is negligent. 
B)  The accountant is presumed to be negligent,but the accountant can possibly rebut that presumption. 
C)  The accountant will be liable for any losses suffered by users of the financial statements. 
D)  The accountant will lose his license to practice the profession of accountancy. 
A)  The accountant is negligent. 
B)  The accountant is presumed to be negligent,but the accountant can possibly rebut that presumption. 
C)  The accountant will be liable for any losses suffered by users of the financial statements. 
D)  The accountant will lose his license to practice the profession of accountancy.

Question 11

The procedure that an accountant performs to determine whether the financial statements of a business are materially accurate is a(n):

Accepted Answer

A)  review 
B)  audit 
C)  compilation 
D)  verification 
E)  account sampling 
A)  review 
B)  audit 
C)  compilation 
D)  verification 
E)  account sampling

Question 12

Securities must be registered with the Securities Exchange Commission before they can be sold.

Accepted Answer

A) True 
 B)False

Question 13

If a client commits an illegal clearly inconsequential act,the accountant need not report it to the client's management and audit committee.

Accepted Answer

A) True 
 B)False

Exam 51: Accountants' Liability

The 1976 Tax Reform Act imposes civil liability on accountants and others who prepare federal tax returns.

Under the Ultramares decision,an accountant is liable only to those with whom the accountant is in privity of contract or a privity-like relationship.

On which of the following theories under common law can an accountant be held liable to parties with whom the accountant is not in privity?

In the Ultramares case involving negligence of a CPA firm,the firm was not found liable as it was not in a contractual relationship with the plaintiff.

Which of the following is true about the accountant-client privilege?

The state law rule of liability of accountants for negligence to third parties that is most favorable to the accountant is:

Accountants are not liable for failing to find misstatements or omissions of facts in a registration statement.

Ordinary negligence of an accountant will result in liability under Rule 10b-5 of the Securities Exchange Act of 1934.

When an accountant has not followed generally accepted auditing standards,which of the following is true?

The procedure that an accountant performs to determine whether the financial statements of a business are materially accurate is a(n):

Securities must be registered with the Securities Exchange Commission before they can be sold.

If a client commits an illegal clearly inconsequential act,the accountant need not report it to the client's management and audit committee.

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Nature of Traditional and E-Contracts

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Third-Party Rights and Discharge

Remedies for Breach of Traditional and E-Contracts

Internet Law and E-Commerce

Formation of Sales and Lease Contracts

Title to Goods and Risk of Loss

Remedies for Breach of Sales and Lease Contracts

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Transferability and Holder In Due Course

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