Question 1

Audit working papers would include all but:

Accepted Answer

A)  accountant fees accrued for the year from all accounts. 
B)  information disclosed during the audit. 
C)  conclusions reached. 
D)  records of accounting and auditing procedures and tests performed. 
A)  accountant fees accrued for the year from all accounts. 
B)  information disclosed during the audit. 
C)  conclusions reached. 
D)  records of accounting and auditing procedures and tests performed.

Question 2

Anna has a contract to perform accounting services for Interior Corporation. She breaches her contract in a nonmaterial way. Which of the following is correct with respect to Anna's right to be paid for her work?

Accepted Answer

A)  Anna is not entitled to any compensation for her services. 
B)  Anna will be paid only if her contract does not specify that it is a "satisfaction" contract. 
C)  Anna is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D)  Anna is entitled to full compensation since the breach is nonmaterial. 
A)  Anna is not entitled to any compensation for her services. 
B)  Anna will be paid only if her contract does not specify that it is a "satisfaction" contract. 
C)  Anna is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D)  Anna is entitled to full compensation since the breach is nonmaterial.

Question 3

In which of the following types of cases can issues of accountant-client confidentiality arise?

Accepted Answer

A)  Civil litigation 
B)  Criminal cases 
C)  Tax disputes 
D)  All of these are situations where it can arise. 
A)  Civil litigation 
B)  Criminal cases 
C)  Tax disputes 
D)  All of these are situations where it can arise.

Question 4

Barbara works for Chevco but owns no Chevco stock. She buys 10 shares of a new issue of company stock as a savings plan and afterward receives the signed registration statement, which contains an untrue statement of material fact. Because she works for Chevco, she recognizes the error. Can she sue the auditor?

Accepted Answer

A)  Yes, under Section 11, reliance is usually not required. 
B)  Yes, if she can prove she would not have bought the stock otherwise. 
C)  No, because she did not rely on the statement. 
D)  No, because there is no privity between Barbara and the auditor. 
A)  Yes, under Section 11, reliance is usually not required. 
B)  Yes, if she can prove she would not have bought the stock otherwise. 
C)  No, because she did not rely on the statement. 
D)  No, because there is no privity between Barbara and the auditor.

Question 5

Historically, privity of contract was not a requirement for a cause of action based on an accountant's liability for negligence.

Accepted Answer

A) True 
 B)False

Question 6

The court's holding in Ultramares Corporation v. Touche:

Accepted Answer

A)  emancipates accountants from the consequences of fraud. 
B)  relieves accountants from liability for reckless misstatement. 
C)  establishes that an accountant's liability for negligence is limited to cases in which there is privity of contract. 
D)  shows no concern for exposure of accountants to liability in an indeterminate amount for an indeterminate time to an indeterminate class. 
A)  emancipates accountants from the consequences of fraud. 
B)  relieves accountants from liability for reckless misstatement. 
C)  establishes that an accountant's liability for negligence is limited to cases in which there is privity of contract. 
D)  shows no concern for exposure of accountants to liability in an indeterminate amount for an indeterminate time to an indeterminate class.

Question 7

Accountants would be subject to criminal liability where they:

Accepted Answer

A)  negligently perform an audit. 
B)  willfully omit a material fact on a securities registration statement. 
C)  refuse to turn over working papers to a client. 
D)  willfully breach a contract. 
A)  negligently perform an audit. 
B)  willfully omit a material fact on a securities registration statement. 
C)  refuse to turn over working papers to a client. 
D)  willfully breach a contract.

Question 8

Pam certified a statement prepared by John, her employee, without checking John's work. He was never known to be anything but diligent and his integrity had never been questioned. The audit contained gross misstatements. Pam defends a suit against her claiming "due diligence." She will:

Accepted Answer

A)  succeed, since she had no reason to believe her employee would lie. 
B)  succeed, because a reasonable person would not have inquired further. 
C)  fail, because due diligence requires reasonable investigation. 
D)  fail, because she is automatically liable for her employee's act. 
A)  succeed, since she had no reason to believe her employee would lie. 
B)  succeed, because a reasonable person would not have inquired further. 
C)  fail, because due diligence requires reasonable investigation. 
D)  fail, because she is automatically liable for her employee's act.

Question 9

When can an accountant release audit working papers?

Accepted Answer

A)  When a client consents 
B)  When a court orders disclosure 
C)  Both of these. 
D)  Neither of these. 
A)  When a client consents 
B)  When a court orders disclosure 
C)  Both of these. 
D)  Neither of these.

Question 10

For negligence cases, the Restatement has adopted the requirement of privity as set forth in the landmark opinion of
Judge Cardozo in Ultramares Corp. v. Touche.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would NOT constitute scienter contributing to liability under Rule 10b-5?

Accepted Answer

A)  Negligent conduct 
B)  Intentional conduct 
C)  Reckless disregard for truth 
D)  Knowing conduct 
A)  Negligent conduct 
B)  Intentional conduct 
C)  Reckless disregard for truth 
D)  Knowing conduct

Question 12

What are the requisite elements of fraud?

Accepted Answer

The requisite elements of fraud include:

Question 13

Wurst & Wurst is the accounting firm that has been used by the Intercontinental Bank for over twenty years. Ben approached Alfred, a Wurst partner, at a cocktail party. Ben asked about the Bank's stability. Although Alfred knew that the bank's stock was overvalued because of some loans to third world countries, he felt a considerable amount
of loyalty to the bank for being a good customer of his accounting firm. Alfred told Ben that Wurst had just finished an audit of the bank, and that the bank was as sound as the Rock of Gibraltar. The next day Ben bought 1,000
shares of Intercontinental. One month later, the bank's losses became the subject of a major financial scandal. Ben is angry and wants to sue. Does Ben have a case?

Accepted Answer

Yes, under Rule 10b-5, an accountant may

Question 14

The Sarbanes-Oxley Act was enacted in response to:

Accepted Answer

A)  accountants' requests for definitive guidelines for their profession. 
B)  business scandals involving companies such as Enron, WorldCom, and the Arthur Andersen accounting firm. 
C)  the need to lighten the oversight and enforcement responsibilities of the SEC. 
D)  the Ultramares Corporation v. Touche case. 
A)  accountants' requests for definitive guidelines for their profession. 
B)  business scandals involving companies such as Enron, WorldCom, and the Arthur Andersen accounting firm. 
C)  the need to lighten the oversight and enforcement responsibilities of the SEC. 
D)  the Ultramares Corporation v. Touche case.

Question 15

An accountant-client privilege is statutorily recognized in some states and would generally permit the accountant to refuse to disclose confidential information gleaned from his client.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is correct with regard to an accountant's contractual liability?

Accepted Answer

A)  An accountant is bound to perform all the duties she explicitly agrees to perform 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary 
D)  All of these are correct. 
A)  An accountant is bound to perform all the duties she explicitly agrees to perform 
B)  An accountant implicitly agrees to perform a contract in a competent and professional manner 
C)  An accountant who breaches his contract with a client may also be liable to a third party intended beneficiary 
D)  All of these are correct.

Question 17

A group of investors bring a class action lawsuit against the H & R Accounting Firm under SEC Rule 10b-5 of the
1934 Securities Act. Richard, an accountant with the firm, had prepared financial reports filed with the SEC for the Paymark Company. The reports contained false information of a material fact, and this led to financial loss to the investors who relied on the reports. What is the likely result of the suit?

Accepted Answer

In general, accountants may be held civi

Question 18

Most courts allow an accountant to raise the defense of the plaintiff's contributory or comparative negligence.

Accepted Answer

A) True 
 B)False

Question 19

An accountant can ethically disclose a client's confidential information if the accountant complies with:

Accepted Answer

A)  the client's consent. 
B)  Generally Accepted Auditing Standards. 
C)  a court order. 
D)  All of these. 
A)  the client's consent. 
B)  Generally Accepted Auditing Standards. 
C)  a court order. 
D)  All of these.

Question 20

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom are known as:

Accepted Answer

A)  tax returns. 
B)  working papers. 
C)  rough drafts. 
D)  privileged communication. 
A)  tax returns. 
B)  working papers. 
C)  rough drafts. 
D)  privileged communication.

Exam 44: Accountants Legal Liability

Audit working papers would include all but:

Anna has a contract to perform accounting services for Interior Corporation. She breaches her contract in a nonmaterial way. Which of the following is correct with respect to Anna's right to be paid for her work?

In which of the following types of cases can issues of accountant-client confidentiality arise?

Historically, privity of contract was not a requirement for a cause of action based on an accountant's liability for negligence.

The court's holding in Ultramares Corporation v. Touche:

Accountants would be subject to criminal liability where they:

Pam certified a statement prepared by John, her employee, without checking John's work. He was never known to be anything but diligent and his integrity had never been questioned. The audit contained gross misstatements. Pam defends a suit against her claiming "due diligence." She will:

When can an accountant release audit working papers?

For negligence cases, the Restatement has adopted the requirement of privity as set forth in the landmark opinion of Judge Cardozo in Ultramares Corp. v. Touche.

Which of the following would NOT constitute scienter contributing to liability under Rule 10b-5?

What are the requisite elements of fraud?

The Sarbanes-Oxley Act was enacted in response to:

An accountant-client privilege is statutorily recognized in some states and would generally permit the accountant to refuse to disclose confidential information gleaned from his client.

Which of the following is correct with regard to an accountant's contractual liability?

Most courts allow an accountant to raise the defense of the plaintiff's contributory or comparative negligence.

An accountant can ethically disclose a client's confidential information if the accountant complies with:

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom are known as:

Introduction to Law

Business Ethics and the Social Responsibility of Business

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Relationship of Principal and Agent

Relationship With Third Parties

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Products Liability: Warranties and Strict Liability in Tort

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature, Formation, and Powers

Financial Structure

Management Structure

Fundamental Changes

Secured Transactions and Suretyship

Bankruptcy

Protection of Intellectual Property

Antitrust

Consumer Protection

Employment Law

Securities Regulation

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Decedents Estates

the Legal Environment of Business

Contracts

Agency

Sales

Negotiable Instruments

Unincorporated Business Associations

Corporations

Debtor and Creditor Relations

Regulation of Business

Property

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