Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

In most courts, accountants are subject to liability for negligence only to their clients.

Accepted Answer

A) True 
 B)False

Question 3

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou​

Accepted Answer

A)  ​can be held liable for malpractice. 
B)  ​has violated an ethical standard but cannot be held liable. 
C)  ​is subject to criminal penalties under the statute of limitations. 
D)  ​will be automatically disbarred. 
A)  ​can be held liable for malpractice. 
B)  ​has violated an ethical standard but cannot be held liable. 
C)  ​is subject to criminal penalties under the statute of limitations. 
D)  ​will be automatically disbarred.

Question 4

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely​

Accepted Answer

A)  ​liable if a normal audit would have revealed the misconduct. 
B)  ​liable if Ricardo issues a specifically qualified opinion. 
C)  ​not liable if Ricardo generally disclaims any liability. 
D)  ​not liable if the misconduct was due to Sensei Sushi's negligence. 
A)  ​liable if a normal audit would have revealed the misconduct. 
B)  ​liable if Ricardo issues a specifically qualified opinion. 
C)  ​not liable if Ricardo generally disclaims any liability. 
D)  ​not liable if the misconduct was due to Sensei Sushi's negligence.

Question 5

Fact Pattern 22-1
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.
-Refer to Fact Pattern 22-1.Nelson is​

Accepted Answer

A)  ​liable for breach of contract. 
B)  ​not liable, because Nelson is a professional. 
C)  ​not liable, because Nelson's failure must have been OPI's fault. 
D)  ​not liable, because the work took longer than foreseen. 
A)  ​liable for breach of contract. 
B)  ​not liable, because Nelson is a professional. 
C)  ​not liable, because Nelson's failure must have been OPI's fault. 
D)  ​not liable, because the work took longer than foreseen.

Question 6

Under federal law, communications between an accountant and his or her client are privileged.

Accepted Answer

A) True 
 B)False

Question 7

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.

Accepted Answer

A) True 
 B)False

Question 8

Damages payable to a client on a professional's breach of contract do not include any penalties the client had to pay as a result of the breach.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The competency of professionals' service is never an issue.

Accepted Answer

A) True 
 B)False

Question 11

Doug, 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, Doug may be liable to​

Accepted Answer

A)  ​no one. 
B)  ​Felicia only. 
C)  ​Felicia and Graham. 
D)  ​Graham only. 
A)  ​no one. 
B)  ​Felicia only. 
C)  ​Felicia and Graham. 
D)  ​Graham only.

Question 12

Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc., a client. Delaney may successfully defend against the claim if he can show that​

Accepted Answer

A)  ​scienter was lacking. 
B)  ​he complied with all International Financial Reporting Standards. 
C)  ​the negligence was not the proximate cause of the client's losses. 
D)  ​the negligence was only contributory. 
A)  ​scienter was lacking. 
B)  ​he complied with all International Financial Reporting Standards. 
C)  ​the negligence was not the proximate cause of the client's losses. 
D)  ​the negligence was only contributory.

Question 13

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​

Accepted Answer

A)  ​any third party. 
B)  ​no third party. 
C)  ​third parties who are foreseen users of the work. 
D)  ​third parties who are reasonably foreseeable users of the work. 
A)  ​any third party. 
B)  ​no third party. 
C)  ​third parties who are foreseen users of the work. 
D)  ​third parties who are reasonably foreseeable users of the work.

Question 14

Gift Company's liabilities exceed its assets. Gift hires Hill & Dale, an accounting firm, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Invest Bank relies on it to make a loan to Gift. When the firm defaults, the bank files a suit against Hill & Dale. Under the Restatement (Third) of Torts, Hill & Dale is most likely​

Accepted Answer

A)  ​liable because Hill & Dale owed a duty of care to Gift. 
B)  ​liable because Hill & Dale owed a duty to any foreseeable user. 
C)  ​liable if Hill & Dale knew that the bank would rely on the balance sheet. 
D)  ​not liable because Hill & Dale and the bank were not in privity. 
A)  ​liable because Hill & Dale owed a duty of care to Gift. 
B)  ​liable because Hill & Dale owed a duty to any foreseeable user. 
C)  ​liable if Hill & Dale knew that the bank would rely on the balance sheet. 
D)  ​not liable because Hill & Dale and the bank were not in privity.

Question 15

Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards​

Accepted Answer

A)  ​does not indicate that Norman was negligent. 
B)  ​is prima facie evidence that Norman was negligent. 
C)  ​precludes Norman from raising any defense against a negligence claim. 
D)  ​is embarrassing but will never subject Norman to liability. 
A)  ​does not indicate that Norman was negligent. 
B)  ​is prima facie evidence that Norman was negligent. 
C)  ​precludes Norman from raising any defense against a negligence claim. 
D)  ​is embarrassing but will never subject Norman to liability.

Question 16

Everett is an accountant whose clients include Finance & Capital, Inc. Under the Ultramares rule, if Everett is negligent in his work for Finance & Capital, he could be liable to Finance & Capital and​

Accepted Answer

A)  ​any third party. 
B)  ​no third party with whom the accountant is not in privity or "near privity." 
C)  ​third parties who are foreseen users of the work. 
D)  ​third parties who are reasonably foreseeable users of the work. 
A)  ​any third party. 
B)  ​no third party with whom the accountant is not in privity or "near privity." 
C)  ​third parties who are foreseen users of the work. 
D)  ​third parties who are reasonably foreseeable users of the work.

Question 17

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.

Accepted Answer

A) True 
 B)False

Question 18

A professional can not be held liable for constructive fraud.

Accepted Answer

A) True 
 B)False

Question 19

In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

Accepted Answer

A) True 
 B)False

Question 20

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.

Accepted Answer

A) True 
 B)False

Exam 22: Professional Liability and Accountability

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

In most courts, accountants are subject to liability for negligence only to their clients.

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou​

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely​

Under federal law, communications between an accountant and his or her client are privileged.

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.

Damages payable to a client on a professional's breach of contract do not include any penalties the client had to pay as a result of the breach.

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

The competency of professionals' service is never an issue.

Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc., a client. Delaney may successfully defend against the claim if he can show that​

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​

Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards​

Everett is an accountant whose clients include Finance & Capital, Inc. Under the Ultramares rule, if Everett is negligent in his work for Finance & Capital, he could be liable to Finance & Capital and​

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.

A professional can not be held liable for constructive fraud.

In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.

Business Ethics

Small Businesses and Franchises

All Forms of Partnerships

Limited Liability Companies and Special Business Forms

Corporate Formation and Financing

Corporate Directors, Officers, and Shareholders

Securities Law and Corporate Governance

Tort Law

Agency Formation and Duties

Agency Liability and Termination

Employment, Immigration, and Labor Law

Employment Discrimination

The Formation of Sales and Lease Contracts

Performance and Breach of Sales and Lease Contracts

Negotiable Instruments

Transferability and Holder in Due Course

Liability, Defenses, and Discharge

Banking in the Digital Age

Creditors Rights and Remedies

Secured Transactions

Bankruptcy Law

Administrative Agencies

Consumer Law

Environmental Protection

Antitrust Law

Personal Property and Bailments

Real Property and Landlord-Tenant Law

Intellectual Property

Insurance

Wills and Trusts

Digital Update:should Employees Have a Right of Disconnecting

Digital Update: Revenge Porn and Invasion of Privacy

Digital Update: Taxing Web Purchases

Ethics Today:what Are an Attorneys Responsibilities for Protecting Data Stored in a Cloud

Digital Update:the Exploding World of Digital Property

Filters

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely

Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc., a client. Delaney may successfully defend against the claim if he can show that

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

Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards

Everett is an accountant whose clients include Finance & Capital, Inc. Under the Ultramares rule, if Everett is negligent in his work for Finance & Capital, he could be liable to Finance & Capital and