Exam 30: Liability of Accountants and Other Professionals

Dwayne can be described as "a reasonably competent general practitioner of ordinary skill,experience,and capacity." This is the normal standard for judging the performance of

Yves is an accountant charged with negli-gence by Zesty Soup Company,a client.Yves may successfully defend against the claim if he can show that

Accountants and other professionals may not be held liable for negligence in the performance of their service.

Flynn,an accountant,helps Grange Supply Company prepare and file a false federal corporate income tax return.Under the In-ternal Revenue Code,this is

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

An accountant normally will be held liable to the client for incorrect judgment.

An accountant who prepares a financial state-ment in good faith may avoid liability under Section 18 of the Securities Ex-change Act of 1934.

Bowie,a certified public accountant,prepares and certifies Candy Products Corporation's financial statements. These statements are in-cluded in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities. Dona buys a security covered by the registration statement. Based on this transaction,Dona files a suit against Bowie under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. To succeed in the suit,what must Dona prove? Bowie responds that Dona was not in priv-ity with him and that even if she had been in privity,she cannot prove his lack of due diligence. Can Bowie prevail on these grounds? Why or why not?

In no states are communications between an accountant and his or her client privileged.

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

Lars accuses Moe,an attorney,of committing malpractice.Malpractice is

Meri,an accountant,includes a false statement in a report for Novelty Paper Products,Inc.(NPPI) that is filed with the Securities and Exchange Com-mission.When Otho buys stock in NPPI and loses money on the investment,he files a suit against Meri,alleging fraud under the 1934 Securities Exchange Act.To avoid liability,Meri can show that she

Pat,an accountant,includes a false statement in a report for Quantity Overstock,Inc.,that is filed with the Securities and Exchange Commis-sion.Quantity publishes a misleading ad about its future prospects.Rita sees the ad and calls Stan,who buys stock in Quantity.Under Section 18 of the Securities Ex-change Act of 1934,liability may attach to

Each state establishes rules that govern the conduct of attorneys

An attorney may be liable in negligence to any third party who the attorney knows will rely on the attorney's work.

Marquis Company's liabilities exceed its assets,but the firm's employees falsify its books to reflect a positive net worth.Marquis hires Nan & Ollie,an accounting firm,to prepare a balance sheet,which is certified to show a positive net worth.Pure Credit Corporation relies on the balance sheet to make a loan to Marquis.When the firm defaults,Pure Credit files a suit against Nan & Ollie.Under the Ultramares rule,the accounting firm is most likely

The Sarbanes-Oxley Act applies to domestic,but not foreign,public accounting firms that provide auditing services to "issuers."

Pace is an attorney,whose clients include Quikfeet Running Shoes Company.Unless Quikfeet has violated securities law,the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Attorneys are required to be familiar with well-settled principles of law applicable to a case.

Lacy is an accountant who prepares her clients' tax returns.Muff is not an accountant,but he also prepares tax returns for clients.Under the In-ternal Revenue Code,liability for preparing a false return may be im-posed on