Question 1

An accountant who materially breaches the contract is entitled to no compensation.

Accepted Answer

A) True 
 B)False

Question 2

To whom does an accountant have potential liability?

Accepted Answer

A) To his client only. 
B) To an intended third party beneficiary. 
C) To a foreseen user of the accountant's work. 
D) All of the above. 
A) To his client only. 
B) To an intended third party beneficiary. 
C) To a foreseen user of the accountant's work. 
D) All of the above.

Question 3

For an accountant to be civilly liable under Rule 10b-5, the accountant must have acted with scienter.

Accepted Answer

A) True 
 B)False

Question 4

Sara holds 1,000 shares of stock in Starr, Inc., which she purchased based upon financial statements that Travis had prepared.She now realizes that the statements were false and wants to sue Travis for common law fraud.What is Travis's best defense?

Accepted Answer

A) Sara lacks privity of contract. 
B) Travis gave a broad disclaimer as part of the financial statement. 
C) The false statements were immaterial. 
D) Starr contributed to the misstatement. 
A) Sara lacks privity of contract. 
B) Travis gave a broad disclaimer as part of the financial statement. 
C) The false statements were immaterial. 
D) Starr contributed to the misstatement.

Question 5

An implied agreement in the contractual relationship is the agreement by the accountant to act in a competent and professional manner.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a true statement concerning the accountant-client privilege?

Accepted Answer

A) If information is considered to be an accountant-client privilege, it may not be admitted into evidence over the objection of the accountant only. 
B) Neither the common law nor federal law recognizes the accountant-client privilege. 
C) Some states have adopted statutes grating some form of the accountant-client privilege. 
D) Both (a) and (b). 
E) Both (b) and (c). 
A) If information is considered to be an accountant-client privilege, it may not be admitted into evidence over the objection of the accountant only. 
B) Neither the common law nor federal law recognizes the accountant-client privilege. 
C) Some states have adopted statutes grating some form of the accountant-client privilege. 
D) Both (a) and (b). 
E) Both (b) and (c).

Question 7

Which of the following would NOT constitute scienter?

Accepted Answer

A) Negligent performance of a substandard audit. 
B) Actual knowledge of fraud. 
C) Reckless disregard for truth. 
D) Being paid to conceal fraud. 
A) Negligent performance of a substandard audit. 
B) Actual knowledge of fraud. 
C) Reckless disregard for truth. 
D) Being paid to conceal fraud.

Question 8

Diane prepared a registration for the first issuance of stock of the Ledmar Corporation.Diane took the assignment very seriously and spent a great deal of time preparing the statement.Two years after the statement was filed, the SEC began to investigate the company and claims that the information in Diane's statement was misleading, because some of the information given to her by the corporation was false.Diane had tried to verify the information, but was not able to do so.An investor is now suing Diane claiming that she violated the 1933 Act.Is Diane liable?

Accepted Answer

Diane will be able to avoid liability by

Question 9

A five-member Public Company Accounting Oversight Board oversees the audit of public companies, and the SEC oversees the Board.

Accepted Answer

A) True 
 B)False

Question 10

Martin agrees to perform an audit within 30 days, knowing that time is of the essence.After the 30 days, Martin has only performed 60% of the audit.Martin has materially breached his contract.

Accepted Answer

A) True 
 B)False

Question 11

Accountants are exempt from civil suits based on the Racketeering Influenced and Corrupt Organizations Act.

Accepted Answer

A) True 
 B)False

Question 12

Accountants are subject to civil liability under the 1933 Act if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact, but only if reliance on the financial statements is proven.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is correct with respect to an accountant's working papers?

Accepted Answer

A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D) All of the above are correct. 
A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D) All of the above are correct.

Question 14

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Accepted Answer

A) Civil liability where there is scienter. 
B) Criminal liability where there is a willful violation. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct. 
A) Civil liability where there is scienter. 
B) Criminal liability where there is a willful violation. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct.

Question 15

In which of the following situations would an accountant be subject to criminal liability?

Accepted Answer

A) Where the accountant negligently performed an audit. 
B) Where the accountant willfully omitted a material fact on a securities registration statement. 
C) Where the accountant refused to turn over working papers to a client. 
D) Where the accountant willfully breached a contract. 
A) Where the accountant negligently performed an audit. 
B) Where the accountant willfully omitted a material fact on a securities registration statement. 
C) Where the accountant refused to turn over working papers to a client. 
D) Where the accountant willfully breached a contract.

Question 16

An accountant may not disclose the contents of his working papers under any circumstances.

Accepted Answer

A) True 
 B)False

Question 17

An accounting firm may perform both bookkeeping services and audits for the same client.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is correct with respect to the accountant-client privilege?

Accepted Answer

A) The common law recognizes such a privilege. 
B) Federal law recognizes such a privilege. 
C) Some states statutorily recognize such a privilege. 
D) All of the above are correct. 
A) The common law recognizes such a privilege. 
B) Federal law recognizes such a privilege. 
C) Some states statutorily recognize such a privilege. 
D) All of the above are correct.

Question 19

The common law recognizes an accountant-client privilege.

Accepted Answer

A) True 
 B)False

Question 20

Under the 1934 Act, an accountant's liability for false or misleading statements is based on a good faith negligence standard.

Accepted Answer

A) True 
 B)False

Exam 44: Accountants Legal Liability

An accountant who materially breaches the contract is entitled to no compensation.

To whom does an accountant have potential liability?

For an accountant to be civilly liable under Rule 10b-5, the accountant must have acted with scienter.

Sara holds 1,000 shares of stock in Starr, Inc., which she purchased based upon financial statements that Travis had prepared.She now realizes that the statements were false and wants to sue Travis for common law fraud.What is Travis's best defense?

An implied agreement in the contractual relationship is the agreement by the accountant to act in a competent and professional manner.

Which of the following is a true statement concerning the accountant-client privilege?

Which of the following would NOT constitute scienter?

A five-member Public Company Accounting Oversight Board oversees the audit of public companies, and the SEC oversees the Board.

Martin agrees to perform an audit within 30 days, knowing that time is of the essence.After the 30 days, Martin has only performed 60% of the audit.Martin has materially breached his contract.

Accountants are exempt from civil suits based on the Racketeering Influenced and Corrupt Organizations Act.

Accountants are subject to civil liability under the 1933 Act if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact, but only if reliance on the financial statements is proven.

Which of the following is correct with respect to an accountant's working papers?

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

In which of the following situations would an accountant be subject to criminal liability?

An accountant may not disclose the contents of his working papers under any circumstances.

An accounting firm may perform both bookkeeping services and audits for the same client.

Which of the following is correct with respect to the accountant-client privilege?

The common law recognizes an accountant-client privilege.

Under the 1934 Act, an accountant's liability for false or misleading statements is based on a good faith negligence standard.

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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