Exam 43: Accountants Legal Liability

Diane prepared a registration for the first issuance of stock of the Ledmar Corporation. Diane took the assignment very seriously and spent a great deal of time preparing the statement. Two years after the statement was filed, the SEC began to investigate the company and claims that the information in Diane's statement was misleading, because some of the information given to her by the corporation was false. Diane had tried to verify the information, but was not able to do so. An investor is now suing Diane claiming that she violated the 1933 act. Is Diane liable?

Taylor, who is conducting an audit of Oakwood Corporation, becomes aware of information that indicates Oakwood was involved in an illegal payment. Discuss Taylor's responsibilities.

First Cardinal Bank has used the  StoneCipher accounting firm  for over twenty years. Orville, a customer of First Cardinal, approached Alfred, a StoneCipher partner, at a local business owner's networking luncheon. Orville asked about the bank's financial stability. Although Alfred knew that the bank's stock was overvalued because of some questionable loans, he felt a considerable amount of loyalty to First Cardinal for being a good customer of his accounting firm. Alfred told Orville that StoneCipher had just finished an audit of the bank, and that the bank was as sound as the Rock of Gibraltar. The next day Orville bought 800 shares of First Cardinal . One month later, the bank's losses became the subject of a major financial scandal. Orville is angry and wants to sue. Does he have a case?

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

An accountant is negligent if she does not exercise the degree of care a reasonably competent accountant would exercise under the circumstances.

For an accountant to be civilly liable under Rule 10b-5, the accountant must have acted with scienter.

Which of the following is NOT true regarding the relationship of an accountant and the client?

Matthew decides to invest in the stock of a television production company after he reads Edgar's audit, which includes a known falsity as to the value of numerous worthless securities held as corporate assets. If Matthew sues Edgar, he will be entitled to:

The lead audit partner having primary responsibility for an audit and the partner responsible for reviewing the audit must rotate at least every 3 years.

An accountant is subject to potential civil liability arising from the professional services he provides to his clients and third parties.

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?

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

Protected individuals under the Restatement view of tort liability for an accountant include potential investors and the general public.

An accountant-client privilege is statutorily recognized in all states, permitting the accountant to refuse to disclose confidential information gleaned from his client.

In recent years, more and more courts have followed the Ultramares doctrine in deciding cases.

Historically, an accountant's liability for negligence extended only to the client and third party beneficiaries.

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

The Public Company Accounting Oversight Board can impose sanctions in its disciplinary proceedings, including the permanent revocation of an accounting firm's registration, a permanent ban on a person's associating with any registered firm, and civil monetary penalties.

A five-member Public Company Accounting Oversight Board oversees the audit of public companies, and the SEC oversees the Board.

An accountant can ethically disclose a client's confidential information if the accountant's disclosure is complying with: