Exam 40: Liability of Accountants and Other Professionals

The Sarbanes-Oxley Act applies only to domestic public accounting firms that provide auditing services to "issuers."

In some states,in the absence of privity,a party cannot recover from an accountant for negligence.

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

An accountant's liability under the Securities Act of 1933 requires privity of contract with the purchaser of a security.

April is an accountant whose clients include Bistro Restaurants Inc. If April is negligent in her work for Bistro,most courts would hold her liable to Bistro and

Traditionally,a professional owed a duty only to those with whom the professional had a direct contractual relationship.

Odette,an accountant,contracts to perform services for Percy. Odette acts in good faith and conforms to generally accepted accounting principles,but makes an incorrect judgment. Odette is most likely

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

Tyson accuses Ulman,an attorney,of committing malpractice. Malpractice is

Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states,working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by

OPI may be entitled to

Ezra,an accountant,intentionally misstates a material fact to mislead Fruit Packing,Inc.,a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

Accountants and other professionals do not face liability under the common law for any breach of contract.

Finola,a certified public accountant,provides accounting services to Global Trade Corporation. The services include preparing Global Trade's financial reports and issuing opinion letters based on the reports. In 2014,Global Trade falls into serious financial trouble,but neither Finola's reports nor her opinion letters indicate this situation. Relying on Finola's portrayal of Global Trade's financial situation,the firm borrows a large sum of money to build a new shipping facility. In lending Global Trade the money,Harbor City Bank relies on Finola's opinion letter. Finola is aware of this reliance. If Finola did not engage in intentional fraud but was negligent,what is her potential liability?

An accountant who performs an audit may be liable for failing to detect misconduct if a normal audit would have revealed it.

Hadley,an accountant,accumulates working papers while performing an audit for Ilene. After the audit,these documents belong to

Under the Sarbanes-Oxley Act,accountants must surrender possession of working papers relating to an audit or review to the party for whom the work was performed.

Nelson,an accountant,enters into a contract to provide services to Operational Processes,Inc. (OPI). Nelson does not finish the work within the contract's deadline. This causes OPI to fail to meet certain other deadlines owed to Prime Bank,which results in the firm's payment of penalties to the bank. -Nelson is

Farley,an accountant,intentionally misstates a material fact to mislead Global Industries,Inc.,a client. Global justifiably relies on the misstatement to its detriment. Farley is most likely liable for

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