Exam 42: Professional Liability and Accountability

Del, an accountant, prepares for Econo Inc. a financial statement that omits a material fact. The statement is included in Econo's registration statement filed with the Securities and Exchange Commission. Fran, who relies the statement, and Gib, who does not, each buy Econo stock. Under Section 11 of the Securities Act of 1933, Del may be liable to

Auto Company's liabilities exceed its assets. The firm hires Bass, an accountant, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Credit Bank relies on the document to make a loan to Auto. When the firm defaults, the bank files a suit against Bass. Under the Restatement (Third)of Torts , Bass is most likely

"A reasonably competent general practitioner of ordinary skill, experience, and capacity" is the normal standard of performance expected of

Ben is an accountant whose clients include Capital Inc. Under the Ultramares rule, if Ben is negligent in his work for Capital, he could be liable to the client and

Haji is an accountant charged with negligence by Infrastructure Service Inc., a client. Haji may successfully defend against the claim if he can show

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

An accountant is liable for any omission in a registration statement to a person who suffers a loss on the securities described in the statement.

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third)of Torts , she may be liable to the client and

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

An accountant is least likely to be held liable for accounting fraud if he or she

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou

Hoki, an accountant, accumulates working papers while performing an audit for Insurance Corporation. After the audit, these documents belong to

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

An auditor who accepts a client's explanation regarding financial irregularities, despite contradictory evidence, could be considered grossly negligent.

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

In general, professionals should discharge their professional responsibilities to the best of their ability.

Cath is an accountant with Discount Corporation. Efrem buys Discount stock and loses money on the investment. To recover from Cath under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove

Herb, an accountant, helps Industrial Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is

Regarding a professional, malpractice is

An attorney's conduct is governed by rules of professional conduct established by the state in which he or she is licensed, and the Model Rules of Professional Conduct of