Exam 43: Accountants Legal Liability

The group responsible for registering public accounting firms that prepare audit reports for issuers; overseeing the audit of public companies; establishing audit report standards and rules; and inspecting, investigating, and enforcing compliance on the part of registered public accounting firms is the:

Which of the following is correct with respect to the accountant-client privilege?

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.

Mary tells her accountant, "I must have this year's audit completed by March 1, and time is of the essence." The accountant agrees to complete the audit by March 1. Under general contract law, if the audit is not completed by March 1, Mary does not have to pay the accountant for the audit.

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:

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

Accountants' liability under the 1933 and 1934 Securities Acts is less extensive and has more limitations than liability under the common law.

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.

Martin agrees to perform an audit within 30 days, knowing that time is of the essence. After the 30 days, Martin has only performed 60% of the audit. Martin has materially breached his contract.

Section 11 of the 1933 Securities Act imposes liability upon an accountant for negligence in the conduct of an audit.

In the Ernst & Ernst v. Hochfelder case, the Supreme Court stated that Section 10(b) of the 1934 Act and SEC Rule 10b-5 apply only to intentional conduct and not to negligence.

Criminal sanctions for accountants are limited to punitive fines.

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

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

To lessen his tax liability, a client asks his accountant to misstate information on his tax return. If the accountant does so, she may be subject to fines and up to three years in prison.

Pam certified a statement prepared by John, her employee, without checking John's work. He was never known to be anything but diligent and his integrity had never been questioned. The audit contained gross misstatements. Pam defends a suit against her claiming "due diligence." She will:

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

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

Barbara, a CPA, fails to discover a fairly obvious error in the books of her client, Banana Computers. If Ben relies on Barbara's certification of the financial statement in deciding to accept the position of president of the company, Barbara will:

In what situations is the accountant-client privilege recognized?