Question 1

Criminal sanctions for accountants are limited to punitive fines.

Accepted Answer

A) True 
 B)False  False

Question 2

SEC Rule 2-01 of Regulation S-X imposes restrictions on which relationship between an accountant and an audit client?

Accepted Answer

A) Employment. 
B) Financial. 
C) Both of the above. 
D) None of the above.This rule deals with the auditor's working papers. 
A) Employment. 
B) Financial. 
C) Both of the above. 
D) None of the above.This rule deals with the auditor's working papers. C

Question 3

When can an accountant release audit working papers?

Accepted Answer

A) When a client consents. 
B) When a court orders disclosure. 
C) At any time at the discretion of the accountant. 
D) Both (a) and (b). 
A) When a client consents. 
B) When a court orders disclosure. 
C) At any time at the discretion of the accountant. 
D) Both (a) and (b). D

Question 4

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom, are known as:

Accepted Answer

A) tax returns. 
B) working papers. 
C) rough drafts. 
D) privileged communication. 
A) tax returns. 
B) working papers. 
C) rough drafts. 
D) privileged communication.

Question 5

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Accepted Answer

A) Privity and due diligence. 
B) Privity, but not due diligence. 
C) Due diligence, but not privity. 
D) Neither privity nor due diligence. 
A) Privity and due diligence. 
B) Privity, but not due diligence. 
C) Due diligence, but not privity. 
D) Neither privity nor due diligence.

Question 6

Upon what is an accountant's potential criminal liability in rendering professional services based?

Accepted Answer

An accountant's potential crim

Question 7

If an auditor becomes aware of information indicating an illegal act within the company being audited, the auditor must:

Accepted Answer

A) determine whether an illegal act occurred and, if it did, the possible effect on the issuer's financial statements. 
B) notify the SEC immediately so it can conduct an investigation. 
C) resign immediately to avoid criminal liability. 
D) notify local law enforcement and remove himself from any association with the company. 
A) determine whether an illegal act occurred and, if it did, the possible effect on the issuer's financial statements. 
B) notify the SEC immediately so it can conduct an investigation. 
C) resign immediately to avoid criminal liability. 
D) notify local law enforcement and remove himself from any association with the company.

Question 8

An accountant is negligent if she does not exercise the degree of care a reasonably competent accountant would exercise under the circumstances.

Accepted Answer

A) True 
 B)False

Question 9

In recent years, more and more courts have followed the Ultramares doctrine in deciding cases.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An accountant who willfully violates Section 11 of the 1933 Securities Act may be subject to criminal liability.

Accepted Answer

A) True 
 B)False

Question 12

Juanita works for Chevco but owns no Chevco stock.She buys 10 shares of a new issue of company stock as a savings plan and afterward receives the signed registration statement, which contains an untrue statement of material fact.Because she works for Chevco, she recognizes the error.Can she sue the auditor?

Accepted Answer

A) Yes, under Section 11, proof of reliance is usually not required. 
B) Yes, if she can prove she would not have bought the stock otherwise. 
C) No, because she did not rely on the statement. 
D) No, because there is no privity between Juanita and the auditor. 
A) Yes, under Section 11, proof of reliance is usually not required. 
B) Yes, if she can prove she would not have bought the stock otherwise. 
C) No, because she did not rely on the statement. 
D) No, because there is no privity between Juanita and the auditor.

Question 13

Neither the common law nor federal law recognizes an accountant-client privilege.

Accepted Answer

A) True 
 B)False

Question 14

Audit working papers would include which of the following?

Accepted Answer

A) Records of accounting and auditing procedures and tests performed. 
B) Information disclosed solely by the payee. 
C) A collection of IRS rulings related to auditing in general. 
D) Accountant fees accrued for the year from all accounts. 
A) Records of accounting and auditing procedures and tests performed. 
B) Information disclosed solely by the payee. 
C) A collection of IRS rulings related to auditing in general. 
D) Accountant fees accrued for the year from all accounts.

Question 15

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.

Accepted Answer

Taylor must first determine whether an i

Question 16

An accountant who substantially performs his contractual duties is generally entitled to be compensated for the contractually agreed-upon fee, less any damages caused to the client.

Accepted Answer

A) True 
 B)False

Question 17

Auditors must report directly to:

Accepted Answer

A) the SEC. 
B) the company's audit committee. 
C) the Public Company Accounting Oversight Board. 
D) the company's Chief Financial Officer or President. 
A) the SEC. 
B) the company's audit committee. 
C) the Public Company Accounting Oversight Board. 
D) the company's Chief Financial Officer or President.

Question 18

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

Accepted Answer

A) Contract disputes. 
B) Criminal cases. 
C) Tax cases. 
D) All of the above are situations where it can arise. 
A) Contract disputes. 
B) Criminal cases. 
C) Tax cases. 
D) All of the above are situations where it can arise.

Question 19

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:

Accepted Answer

A) nothing, in a majority of states, since the class of foreseen users of the audit contract does not include potential investors and the general public. 
B) compensatory damages, in a majority of states, if he is a foreseen user of the audit. 
C) nominal damages only. 
D) rescission of his purchase contract. 
A) nothing, in a majority of states, since the class of foreseen users of the audit contract does not include potential investors and the general public. 
B) compensatory damages, in a majority of states, if he is a foreseen user of the audit. 
C) nominal damages only. 
D) rescission of his purchase contract.

Question 20

Mary tells her accountant, "I must have this year's audit completed by March 1." 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.

Accepted Answer

A) True 
 B)False

Exam 44: Accountants Legal Liability

Criminal sanctions for accountants are limited to punitive fines.

SEC Rule 2-01 of Regulation S-X imposes restrictions on which relationship between an accountant and an audit client?

When can an accountant release audit working papers?

An accountant's records, including the data-gathering process followed and the information and conclusions drawn therefrom, are known as:

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Upon what is an accountant's potential criminal liability in rendering professional services based?

If an auditor becomes aware of information indicating an illegal act within the company being audited, the auditor must:

An accountant is negligent if she does not exercise the degree of care a reasonably competent accountant would exercise under the circumstances.

In recent years, more and more courts have followed the Ultramares doctrine in deciding cases.

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

An accountant who willfully violates Section 11 of the 1933 Securities Act may be subject to criminal liability.

Neither the common law nor federal law recognizes an accountant-client privilege.

Audit working papers would include which of the following?

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.

An accountant who substantially performs his contractual duties is generally entitled to be compensated for the contractually agreed-upon fee, less any damages caused to the client.

Auditors must report directly to:

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

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:

Mary tells her accountant, "I must have this year's audit completed by March 1." 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.

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer

Holder in Due Course

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Financial Structure of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Consumer Protection

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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