Question 1

Which of the following is correct with respect to an accountant's working papers?

Accepted Answer

A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not disclose the contents of his working papers unless the client consents or a court orders the disclosure. 
D) All of these are correct. 
A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not disclose the contents of his working papers unless the client consents or a court orders the disclosure. 
D) All of these are correct.

Question 2

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

Accepted Answer

Three ways the Sarbanes-Oxley Act affect

Question 3

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 4

An accountant's liability under the federal securities laws is basically the same as the liability at common law.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Accepted Answer

A) Civil liability where there is scienter 
B) Criminal liability where there is a willful violation 
C) Both of these are correct. 
D) Neither of these is correct. 
A) Civil liability where there is scienter 
B) Criminal liability where there is a willful violation 
C) Both of these are correct. 
D) Neither of these is correct.

Question 8

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 9

What are the requisite elements of fraud?

Accepted Answer

The requisite elements of fraud include:

Question 10

The accountant-client privilege is recognized:

Accepted Answer

A) only in federal court proceedings. 
B) by virtue of the common law in most states. 
C) only in those states that have enacted statutes creating such a privilege. 
D) in most states by reason of court decisions. 
A) only in federal court proceedings. 
B) by virtue of the common law in most states. 
C) only in those states that have enacted statutes creating such a privilege. 
D) in most states by reason of court decisions.

Question 11

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

Accepted Answer

A) contract law. 
B) tort law. 
C) criminal law. 
D) all of these. 
A) contract law. 
B) tort law. 
C) criminal law. 
D) all of these.

Question 12

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 13

Which of the following can be the basis for an accountant's liability under state law?

Accepted Answer

A) Contract law and negligence, but not criminal law 
B) Tort law, contract law, and criminal law 
C) Negligence, criminal law, and strict liability 
D) Intentional torts and negligence, but not contract law 
A) Contract law and negligence, but not criminal law 
B) Tort law, contract law, and criminal law 
C) Negligence, criminal law, and strict liability 
D) Intentional torts and negligence, but not contract law

Question 14

Tom decides to invest in the stock of Triad Television after he reads Edgar's audit, which includes a statement, known by Edgar to be false, as to the value of numerous worthless securities held as corporate assets.If Tom sues Edgar in a state using the broadest test for determining an accountant's liability for negligence to third parties, he will be entitled to:

Accepted Answer

A) nothing, since he is an incidental beneficiary of the audit contract. 
B) damages if he is a reasonably foreseeable plaintiff. 
C) have Edgar complete a new audit. 
D) rescission of his purchase contract. 
A) nothing, since he is an incidental beneficiary of the audit contract. 
B) damages if he is a reasonably foreseeable plaintiff. 
C) have Edgar complete a new audit. 
D) rescission of his purchase contract.

Question 15

A tax client wishing to defer income he earned this year asks his accountant to misstate information on his tax return.If the accountant does so, she may be subject to fines and up to five years in prison.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

The legal issues concerning th

Question 17

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 18

The Public Company Accounting Oversight Board can impose sanctions in its disciplinary proceedings, including:

Accepted Answer

A) revocation of an accounting firm's registration, only on a temporary basis. 
B) a permanent ban on a person's associating with any registered firm. 
C) monetary penalties of $1 million for natural persons. 
D) monetary penalties of no more than $10 million for an accounting firm. 
A) revocation of an accounting firm's registration, only on a temporary basis. 
B) a permanent ban on a person's associating with any registered firm. 
C) monetary penalties of $1 million for natural persons. 
D) monetary penalties of no more than $10 million for an accounting firm.

Question 19

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

Accepted Answer

A) inform the issuer's management and make sure the audit committee or the board of directors is adequately informed. 
B) notify the SEC within one day of discovering the illegal act. 
C) resign if the issuer does not notify the SEC of the illegality within ten business days. 
D) be subject to criminal penalties if the auditor willfully violates the Reform Act by not resigning or furnishing reports to the SEC. 
A) inform the issuer's management and make sure the audit committee or the board of directors is adequately informed. 
B) notify the SEC within one day of discovering the illegal act. 
C) resign if the issuer does not notify the SEC of the illegality within ten business days. 
D) be subject to criminal penalties if the auditor willfully violates the Reform Act by not resigning or furnishing reports to the SEC.

Question 20

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.

Exam 44: Accountants Legal Liability

Which of the following is correct with respect to an accountant's working papers?

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

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

An accountant's liability under the federal securities laws is basically the same as the liability at common law.

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

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

What are the requisite elements of fraud?

The accountant-client privilege is recognized:

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

Which of the following can be the basis for an accountant's liability under state law?

A tax client wishing to defer income he earned this year asks his accountant to misstate information on his tax return.If the accountant does so, she may be subject to fines and up to five years in prison.

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?

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

The Public Company Accounting Oversight Board can impose sanctions in its disciplinary proceedings, including:

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

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

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

51: The Legal Environment Of Business

52: Contracts.

53: Agency.

54: Sales

55: Negotiable Instruments

56: Unincorporated Business Association

57: Corporations

58: Debtor and Creditor Relation

59: Regulation of Business

60: Property.

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