Exam 44: Accountants Legal Liability

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

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

The Ultramares case involved the liability of an accountant under the Securities Act of 1933.

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

The accountant-client privilege is recognized:

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?

Scienter is not a requirement for an accountant to be civilly liable under Rule 10b-5.

The failure by an accountant to use the care of a reasonably competent accountant is:

Identify three ways the Sarbanes-Oxley Act affects accountants and auditors.

In providing services for his client, an accountant obtains information concerning the client's business affairs. What are the legal issues concerning this client information?

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

The common law recognizes an accountant-client privilege.

Under the majority view and the Restatement test for determining liability, negligence of an accountant in conducting an audit may result in damage awards to potential investors.

An accountant who substantially performs his contractual duties under a contract with a client is entitled to compensation at the agreed upon rate less any damages he has caused the client.

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

Mary tells her accountant, "I must have this year's audit completed by March 1." The accountant agrees to complete the audit by March 1. Under general contract law, if the audit is not completed by March 1, Mary does not have to pay the accountant for the audit.

If an auditor of financial statements required by the 1934 Act becomes aware of an illegal act, the auditor must:

Accountants authorized under federal law to practice before the IRS have the privilege of confidentiality for tax advice given to their client-taxpayers with respect to Internal Revenue Code matters.

Under the Private Securities Litigation Reform Act of 1995, those who audit financial statements required by the 1934 Securities Exchange Act must establish procedures capable of:

As a result of the Sarbanes-Oxley Act, the lead audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit must rotate at least every three years.