Exam 27: Accountants' Liability

The accounting firm of Griggs,Macon,and Fiurre audits the financial records of Chasse,a public company.The Sarbanes-Oxley Act prohibits the accounting firm from providing consulting services to Chasse on human resource matters.

Under the amended Securities Exchange Act of 1934,accountants are liable jointly and severally whether or not they knew they were violating the law.

An accountant is liable for fraud to

Accounting contracts can be either written or oral.

Nancy is an auditor.She works in a state that uses the Ultramares Doctrine.She fraudulently prepared financial documents for her client,Star,Inc.Her client presented the information to Moonglow,Inc.Moonglow was a potential creditor of Star,Inc.,and was seriously damaged by the fraudulent financial information.Moonglow sued Nancy.She claims she is not liable to Moonglow,a third party,since she was not provided with its name at the time the audit was prepared.Is she liable to Moonglow? Explain.

Great State Bank claimed that Wiles Accounting committed fraud in the preparation of an audit.To hold the accounting firm liable,which of the following elements must be established?

An auditor for Ralco Accounting firm was auditing the financial statements of E-prise.The auditor suspected that E-prise was engaged in illegal activity.Under Section 10A of the 1934 Act,the auditor is required to notify E-prise's board of directors of the suspicions.

John is auditing MegaCorp.He finds an accounts payable for 10,000 cases of ball bearings.He checks to make sure the paper actually arrived and that the receiving department had signed and dated the invoice.He also checks the original purchase order to make sure the purchase was properly authorized.This illustrates

Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?

BGH Accounting firm audited the financial statements that were included in E-prise's registration statement.The financial statements overstated sales by 2000%.In conducting the audit,BGH did not comply with generally accepted auditing standards (GAAS).Under Section 11 of the 1933 Act,BGH is liable for any material misstatement or omission in the financial statements they prepared for E-prise.

An engagement letter is a written contract

Adam claimed that N & A,its accounting firm,negligently prepared an audit.To hold the accounting firm liable,which of the following elements must be established?

To verify transactions,accountants use two mirror-image processes: vouching and tracing.Tracing is a process where the accountant begins with an item of original data and checks out all the activity that has occurred from beginning to end to make sure it has been properly recorded throughout the bookkeeping process.

Fast Auditors prepared audited financial statements for Mega Company's registration statement in compliance with the 1933 Securities Act.John bought stock in Mega Company.It was discovered that the financial statements prepared for the registration statement contained some important omissions.John sued Fast Auditors to recover his investment when Mega Company turned out to be a bad investment.What must John prove to recover from Fast Auditors?

One of the accountant's most important roles is to serve as an independent evaluator of the financial statements issued by management to investors and creditors.

In 2007,the Securities and Exchange Commission (SEC)began to allow foreign companies to use which of the following for its reporting standards?

Who owns and controls an accountant's working papers?

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank. -Under the foreseeable doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

Which of the following opinions indicates that the company's financial statements fairly present its financial condition according to GAAP?

The IRS files criminal charges against Rich for evasion of federal taxes.Rich's accountant,Sonya,is summoned to appear in court to testify against Rich.The state where the incident occurred recognizes an accountant-client privilege.Does Sonya have to testify in federal court against her client?