Exam 42: Professional Liability and Accountability

An accounting firm can lawfully perform both auditing and non-auditing services for the same company at the same time because the firm could otherwise be exposed to potentially massive liability.

An accountant should destroy working papers on the completion of an audit to avoid the possibility of having to provide evidence in a suit in which the accountant's competence is challenged.

A professional who is sanctioned by a court for fraudulent conduct cannot also be penalized by a state board of professional ethics.

Rico, an accountant, contracts to conduct an audit for Sushi Restaurants. In performing the audit, Rico fails to detect a Sushi employee's obvious theft of funds from the firm. Rico is most likely

It is a felony for anyone-not just accountants-to willfully make false statements in a tax return or to willfully assist others in preparing a false return.

Silva prepares federal corporate income tax returns for Trade Stores Inc., and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Silva may be liable for

An accountant who conforms to generally accepted auditing standards and acts in good faith will most likely not be liable to a client for incorrect judgment.

An attorney who becomes aware that a client has violated securities laws must report the violation to the Securities Exchange Commission-which creates a potential conflict with the attorney-client privilege.

Once an attorney-client relationship arises, to encourage frankness, all communications between the parties are privileged.

Marco is an accountant who prepares his clients' tax returns. Nell is not an accountant, but she also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Cliff is an attorney whose clients include Data Inc. Unless Data has violated securities law, the contents of Cliff's file on the firm may be disclosed to a third party

An accountant who uncovers suspicious financial dealings in a client's books and fails to investigate or to inform the client is liable for any resulting loss.

Negligence cases against professionals often focus on the standard of care exercised by the professional.

Ty is an accountant whose clients include United Corporation. Working papers that Ty develops when preparing financial reports for United are owned by

Under the Private Securities Litigation Reform Act, an accountant who participates in, but is unaware of, illegal conduct may be liable for proportionately less than the entire loss.

An auditor who agrees to examine a client's records for fraud and then fails to detect it is not liable because a normal audit is not intended to uncover fraud.

A professional can be held liable for constructive fraud whether or not he or she acted with fraudulent intent.

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.