Question 1

Constructive fraud is defined as intentional misrepresentation or omission of a material fact that is relied on by a client and causes the client damage.

Accepted Answer

A) True 
 B)False

Question 2

________ is a state law that provides that an accountant's work papers cannot be used against a client in a court action.

Accepted Answer

A) Work product immunity 
B) Accountant-client privilege 
C) Foreseeability standard 
D) Noerr Doctrine 
A) Work product immunity 
B) Accountant-client privilege 
C) Foreseeability standard 
D) Noerr Doctrine

Question 3

The Ultramares doctrine provides the broadest standard for holding accountants liable to third parties for negligence.

Accepted Answer

A) True 
 B)False

Question 4

An unqualified opinion would entail that the company's financial statements have some deviation from Generally Accepted Accounting Principles (GAAPs).

Accepted Answer

A) True 
 B)False

Question 5

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

Accepted Answer

A) Section 2(b)of the Robinson-Patman Act 
B) Section 5 of the Federal Trade Commission 
C) Section 552 of the Restatement (Second)of Torts 
D) Section 16 of the Clayton Act 
A) Section 2(b)of the Robinson-Patman Act 
B) Section 5 of the Federal Trade Commission 
C) Section 552 of the Restatement (Second)of Torts 
D) Section 16 of the Clayton Act

Question 6

Which of the following statements is true of accountants?

Accepted Answer

A) Accountants cannot be hired to perform nonaudit services. 
B) Accountants cannot be held liable by provisions of common law. 
C) Accountants can be held liable to clients but not to third parties. 
D) Accountants who lack certified public accountant (CP
A) certification are called public accountants. 
A) Accountants cannot be hired to perform nonaudit services. 
B) Accountants cannot be held liable by provisions of common law. 
C) Accountants can be held liable to clients but not to third parties. 
D) Accountants who lack certified public accountant (CP
A) certification are called public accountants.

Question 7

A rule that says that an accountant is liable for negligence to third parties who are projected users of the client's financial statements is known as ________.

Accepted Answer

A) the foreseeability standard 
B) the Ultramares doctrine 
C) the due diligence defense 
D) the privity of contract 
A) the foreseeability standard 
B) the Ultramares doctrine 
C) the due diligence defense 
D) the privity of contract

Question 8

When an accountant has behaved negligently causing damage to a third party,the third party ________.

Accepted Answer

A) cannot sue the accountant under any circumstance 
B) cannot bring a tort action against the accountant to recover damages 
C) cannot sue the accountant for breach of contract 
D) cannot claim constructive but not actual fraud on part of the defendant 
A) cannot sue the accountant under any circumstance 
B) cannot bring a tort action against the accountant to recover damages 
C) cannot sue the accountant for breach of contract 
D) cannot claim constructive but not actual fraud on part of the defendant

Question 9

A qualified opinion is the most favorable opinion that an accountant can render.

Accepted Answer

A) True 
 B)False

Question 10

A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a)of the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 11

In which of the following ways can an accountant defeat the imposition of liability under Section 18(a)?

Accepted Answer

A) if he or she can show that the misleading statement was made to protect the company from bankruptcy 
B) if he or she had acted out of recklessness 
C) if he or she was an employee to the plaintiff 
D) if he or she can show that the plaintiff had knowledge of the false statement 
A) if he or she can show that the misleading statement was made to protect the company from bankruptcy 
B) if he or she had acted out of recklessness 
C) if he or she was an employee to the plaintiff 
D) if he or she can show that the plaintiff had knowledge of the false statement

Question 12

Accountants can be held liable for negligence in preparing unaudited financial statements.

Accepted Answer

A) True 
 B)False

Question 13

________ is a rule that limits a defendant's accountability to his or her equivalent degree of fault.

Accepted Answer

A) Privity of contract 
B) Due diligence defense 
C) Proportionate liability 
D) Ultramares doctrine 
A) Privity of contract 
B) Due diligence defense 
C) Proportionate liability 
D) Ultramares doctrine

Question 14

Which of the following legislations makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC?

Accepted Answer

A) Section 24 of the Securities Act of 1933 
B) Tax Reform Act of 1976 
C) Private Securities Litigation Reform Act of 1995 
D) Section 10(b)of the Securities Exchange Act of 1934 
A) Section 24 of the Securities Act of 1933 
B) Tax Reform Act of 1976 
C) Private Securities Litigation Reform Act of 1995 
D) Section 10(b)of the Securities Exchange Act of 1934

Question 15

In the case of Ultramares Corporation vs.Touche,the defendant was found to be not guilty of negligence due to lack of privity of contract.

Accepted Answer

A) True 
 B)False

Question 16

Pursuant to federal securities laws,an audit must be performed by a certified public accountant (CP
A)who works closely with the company in the capacity of a chief executive officer (CE
O)or a chief financial officer (CF
O).

Accepted Answer

A) True 
 B)False

Question 17

The Tax Reform Act of 1976 created the Public Company Accounting Oversight Board (PCAOB).

Accepted Answer

A) True 
 B)False

Question 18

The Securities Act of 1933 requires that before a corporation or another business sells securities to the public,the issuer must file a registration statement with the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 19

A formal entrance into a contract between a client and an accountant is called abatement.

Accepted Answer

A) True 
 B)False

Question 20

What prohibition does the Sarbanes-Oxley Act impose on an accounting firm providing audit and nonaudit services to the same company?

Accepted Answer

The act makes it unlawful for a register

Exam 51: Accountants Duties and Liability

Constructive fraud is defined as intentional misrepresentation or omission of a material fact that is relied on by a client and causes the client damage.

________ is a state law that provides that an accountant's work papers cannot be used against a client in a court action.

The Ultramares doctrine provides the broadest standard for holding accountants liable to third parties for negligence.

An unqualified opinion would entail that the company's financial statements have some deviation from Generally Accepted Accounting Principles (GAAPs).

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

Which of the following statements is true of accountants?

A rule that says that an accountant is liable for negligence to third parties who are projected users of the client's financial statements is known as ________.

When an accountant has behaved negligently causing damage to a third party,the third party ________.

A qualified opinion is the most favorable opinion that an accountant can render.

A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a)of the Securities Act of 1933.

In which of the following ways can an accountant defeat the imposition of liability under Section 18(a)?

Accountants can be held liable for negligence in preparing unaudited financial statements.

________ is a rule that limits a defendant's accountability to his or her equivalent degree of fault.

Which of the following legislations makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC?

In the case of Ultramares Corporation vs.Touche,the defendant was found to be not guilty of negligence due to lack of privity of contract.

Pursuant to federal securities laws,an audit must be performed by a certified public accountant (CP A)who works closely with the company in the capacity of a chief executive officer (CE O)or a chief financial officer (CF O).

The Tax Reform Act of 1976 created the Public Company Accounting Oversight Board (PCAOB).

The Securities Act of 1933 requires that before a corporation or another business sells securities to the public,the issuer must file a registration statement with the Securities and Exchange Commission (SEC).

A formal entrance into a contract between a client and an accountant is called abatement.

What prohibition does the Sarbanes-Oxley Act impose on an accounting firm providing audit and nonaudit services to the same company?

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