Question 1

In order to be valid,an accountant's disclaimer of liability must be (1)clear and unambiguous and (2)non-conspicuous.

Accepted Answer

A) True 
 B)False  False

Question 2

Third persons are prohibited from recovering from an accountant who commits fraud.

Accepted Answer

A) True 
 B)False  False

Question 3

Malpractice is both a form of negligence and a tort.

Accepted Answer

A) True 
 B)False  True

Question 4

An accountant guilty of malpractice can be sued:

Accepted Answer

A)  for breach of contract only. 
B)  for negligence only. 
C)  for breach of contract or for tort liability. 
D)  in federal court only if the suit is brought by a third person. 
A)  for breach of contract only. 
B)  for negligence only. 
C)  for breach of contract or for tort liability. 
D)  in federal court only if the suit is brought by a third person.

Question 5

To bring a tort action for malpractice,a plaintiff must show that the defendant's breach was at least:

Accepted Answer

A)  intentional. 
B)  negligent. 
C)  reckless. 
D)  fraudulent. 
A)  intentional. 
B)  negligent. 
C)  reckless. 
D)  fraudulent.

Question 6

Any disclaimer by an accountant that excludes liability for malpractice based on negligence is void.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true?

Accepted Answer

A)  Auditors are always eligible for whistleblower awards. 
B)  Auditors are only eligible for whistleblower awards if they report information to the board of directors and the board fails to take action. 
C)  Auditors are only eligible for whistleblower awards if they report conduct by a company that is intended to inhibit an SEC investigation. 
D)  Auditors are never eligible for whistleblower awards. 
A)  Auditors are always eligible for whistleblower awards. 
B)  Auditors are only eligible for whistleblower awards if they report information to the board of directors and the board fails to take action. 
C)  Auditors are only eligible for whistleblower awards if they report conduct by a company that is intended to inhibit an SEC investigation. 
D)  Auditors are never eligible for whistleblower awards.

Question 8

To help eliminate conflicts of interest,Sarbanes-Oxley prohibits certain activities by audit firms for their audit clients,including:

Accepted Answer

A)  the design and implementation of financial information systems. 
B)  actuarial services. 
C)  management functions and human resources. 
D)  all of the above. 
A)  the design and implementation of financial information systems. 
B)  actuarial services. 
C)  management functions and human resources. 
D)  all of the above.

Question 9

An exculpatory clause most likely would be held to limit or disclaim liability for malpractice:

Accepted Answer

A)  in an action based on fraud. 
B)  in a suit brought by a third person. 
C)  when the accountant can reasonably be expected to stand behind the information in question. 
D)  when the clause is conspicuous,unambiguous,and clear. 
A)  in an action based on fraud. 
B)  in a suit brought by a third person. 
C)  when the accountant can reasonably be expected to stand behind the information in question. 
D)  when the clause is conspicuous,unambiguous,and clear.

Question 10

To ensure that audit partners do not become entrenched,Sarbanes-Oxley requires audit firms to change audit partners at least once every __________ years.

Accepted Answer

A)  three (3) 
B)  five (5) 
C)  seven (7) 
D)  ten (10) 
A)  three (3) 
B)  five (5) 
C)  seven (7) 
D)  ten (10)

Question 11

One of the concerns reflected in Sarbanes-Oxley was that auditors were not exercising sufficient discretion and independence in conducting audits of their clients.

Accepted Answer

A) True 
 B)False

Question 12

The Public Company Oversight Board:

Accepted Answer

A)  is a governmental body. 
B)  must have at least three board members that are CPAs. 
C)  enforces rules to ensure audit quality and auditor independence. 
D)  all of the above. 
A)  is a governmental body. 
B)  must have at least three board members that are CPAs. 
C)  enforces rules to ensure audit quality and auditor independence. 
D)  all of the above.

Question 13

Professionals who fail to exercise normal care and skill in the performance of a contract for their services may be sued for a special type of breach described as:

Accepted Answer

A)  sub par performance. 
B)  illegal practice. 
C)  malpractice. 
D)  competence reservation. 
A)  sub par performance. 
B)  illegal practice. 
C)  malpractice. 
D)  competence reservation.

Question 14

The contact rule applies in which of the following states?

Accepted Answer

A)  Alabama 
B)  Indiana 
C)  New York 
D)  All of the above 
A)  Alabama 
B)  Indiana 
C)  New York 
D)  All of the above

Question 15

New York follows the "contact" rule in determining when third persons can sue accountants for negligence.

Accepted Answer

A) True 
 B)False

Question 16

An accountant who is being sued by a third person for malpractice based on fraud will be able to avoid liability if the accountant can show:

Accepted Answer

A)  contributory negligence on the part of the plaintiff. 
B)  that an exculpatory clause applies. 
C)  that the plaintiff did not rely on the false statement. 
D)  the absence of privity of contract. 
A)  contributory negligence on the part of the plaintiff. 
B)  that an exculpatory clause applies. 
C)  that the plaintiff did not rely on the false statement. 
D)  the absence of privity of contract.

Question 17

Sarbanes-Oxley would prohibit which of the following individuals from serving on an audit committee of the company's board?

Accepted Answer

A) a director who accepts consulting fees from the company 
B) a director who is affiliated with the company 
C) a director who is affiliated with a subsidiary of the company. 
D) all of the above. 
A) a director who accepts consulting fees from the company 
B) a director who is affiliated with the company 
C) a director who is affiliated with a subsidiary of the company. 
D) all of the above.

Question 18

An accountant may be liable for damages if the accountant fails to inform a client of the tax consequences associated with selling a business.

Accepted Answer

A) True 
 B)False

Question 19

Horseco,a new business,purchased ten thoroughbred horses for racing and breeding purposes.It hired John,an accountant,to prepare financial projections of anticipated future earnings for the first five (5)years of the new business.The information provided to John as the basis for the projections included assumptions made by Horseco about anticipated earnings from racing and breeding.The assumptions were based on Horseco's experience and were not based on objective standards that could be examined by John.John included with the projections a disclaimer that stated that the income projections were based on assumptions provided by Horseco and that John assumed no personal responsibility for the accuracy of those projections.Subsequently,the Larson Company purchased a fifty (50)percent interest in Horseco,and when Horseco's income did not match the projections,Larson sued John for accounting malpractice.How will the court decide?

Accepted Answer

Judgment will be for John.Disclaimers pe

Question 20

Disclaimers of liability are valid when the circumstances are such that it is not reasonable to expect the accountant to stand behind certain data.

Accepted Answer

A) True 
 B)False

Exam 47: Accountants Liability and Malpractice

In order to be valid,an accountant's disclaimer of liability must be (1)clear and unambiguous and (2)non-conspicuous.

Third persons are prohibited from recovering from an accountant who commits fraud.

Malpractice is both a form of negligence and a tort.

An accountant guilty of malpractice can be sued:

To bring a tort action for malpractice,a plaintiff must show that the defendant's breach was at least:

Any disclaimer by an accountant that excludes liability for malpractice based on negligence is void.

Which of the following statements is true?

To help eliminate conflicts of interest,Sarbanes-Oxley prohibits certain activities by audit firms for their audit clients,including:

An exculpatory clause most likely would be held to limit or disclaim liability for malpractice:

To ensure that audit partners do not become entrenched,Sarbanes-Oxley requires audit firms to change audit partners at least once every __________ years.

One of the concerns reflected in Sarbanes-Oxley was that auditors were not exercising sufficient discretion and independence in conducting audits of their clients.

The Public Company Oversight Board:

Professionals who fail to exercise normal care and skill in the performance of a contract for their services may be sued for a special type of breach described as:

The contact rule applies in which of the following states?

New York follows the "contact" rule in determining when third persons can sue accountants for negligence.

An accountant who is being sued by a third person for malpractice based on fraud will be able to avoid liability if the accountant can show:

Sarbanes-Oxley would prohibit which of the following individuals from serving on an audit committee of the company's board?

An accountant may be liable for damages if the accountant fails to inform a client of the tax consequences associated with selling a business.

Disclaimers of liability are valid when the circumstances are such that it is not reasonable to expect the accountant to stand behind certain data.

The Nature and Sources of Law

The Court System and Dispute Resolution

Business Ethics, Social Forces, and the Law

The Constitution As the Foundation of the Legal Environment

Government Regulation of Competition and Prices

Administrative Agencies

The Legal Environment of International Trade

Crimes

Torts

Intellectual Property Rights

Cyberlaw

Nature and Classes of Contracts: Contracting on the Internet

Formation of Contracts: Offer and Acceptance

Capacity and Genuine Assent

Consideration

Legality and Public Policy

Writing, Electronic Forms, and Interpretation of Contracts

Third Persons and Contracts

Discharge of Contracts

Breach of Contract and Remedies

Personal Property and Bailments

Legal Aspects of Supply Chain Management

Nature and Form of Sales

Title and Risk of Loss

Product Liability: Warranties and Torts

Obligations and Performance

Remedies for Breach of Sales Contracts

Kinds of Instruments, parties, and Negotiability

Transfers of Negotiable Instruments and Warranties of Parties

Liability of the Parties Under Negotiable Instruments

Checks and Funds Transfers

Nature of the Debtor-Creditor Relationship

Consumer Protection

Secured Transactions in Personal Property

Bankruptcy

Insurance

Agency

Third Persons in Agency

Regulation of Employment

Equal Employment Opportunity Law

Types of Business Organizations

Partnerships

LPs, LLCs, and LLPs

Corporate Formation

Shareholder Rights in Corporations

Securities Regulation

Management of Corporations

Real Property

Environmental Law and Land Use Controls

Leases

Decedents Estates and Trusts

Filters