Question 1

Teresa is suing her accountant for fraud.To win,Teresa must show that she justifiably relied on the accountant's fraudulent statement.

Accepted Answer

A) True 
 B)False

Question 2

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank.Under the Ultramares doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

Accepted Answer

A) True 
 B)False

Question 3

Generally accepted accounting principles (GAAP)are the rules for preparing financial statements.

Accepted Answer

A) True 
 B)False

Question 4

In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?

Accepted Answer

A) a criminal case 
B) a case involving the SEC 
C) a case concerning the preparation of tax returns 
D) a civil case involving the IRS 
A) a criminal case 
B) a case involving the SEC 
C) a case concerning the preparation of tax returns 
D) a civil case involving the IRS

Question 5

GBH,an accounting firm,was hired to prepare financial statements for E-treme.Great State Bank has asked to see GBH's working papers since it is thinking about extending a $4 million line of credit to E-treme.Which of the following statements is correct?

Accepted Answer

A) GBH can show the bank the working papers because Great State Bank has a proper purpose. 
B) GBH can show the bank the working papers because Great State Bank is a known third party. 
C) GBH cannot show the bank the working papers under any circumstances as they are not finalized. 
D) GBH cannot show the bank the working papers unless E-treme gives permission. 
A) GBH can show the bank the working papers because Great State Bank has a proper purpose. 
B) GBH can show the bank the working papers because Great State Bank is a known third party. 
C) GBH cannot show the bank the working papers under any circumstances as they are not finalized. 
D) GBH cannot show the bank the working papers unless E-treme gives permission.

Question 6

BGH Accounting firm audited the financial statements that were included in E-prise's registration statement.The financial statements overstated sales by 2000%.In conducting the audit,BGH did not comply with generally accepted auditing standards (GAAS).Under Section 11 of the 1933 Act,BGH is liable for any material misstatement or omission in the financial statements it prepared for E-prise.

Accepted Answer

A) True 
 B)False

Question 7

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank.Under the foreseeable doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

Accepted Answer

A) True 
 B)False

Question 8

An auditor for Ralco Accounting firm was auditing the financial statements of E-prise.The auditor suspected that E-prise was engaged in illegal activity.Under Section 10(b)of the 1934 Act,the auditor is required to notify E-prise's board of directors of the suspicions.

Accepted Answer

A) True 
 B)False

Question 9

Under SOX,accountants for public companies must keep all audit work papers for at least

Accepted Answer

A) two years. 
B) five years. 
C) seven years. 
D) ten years. 
A) two years. 
B) five years. 
C) seven years. 
D) ten years.

Question 10

An auditor who determines a company is materially misstating certain items on its financial statements should issue a(n)

Accepted Answer

A) unqualified opinion. 
B) qualified opinion. 
C) adverse opinion. 
D) disclaimer of opinion. 
A) unqualified opinion. 
B) qualified opinion. 
C) adverse opinion. 
D) disclaimer of opinion.

Question 11

Nancy is an auditor.She works in a state that uses the Ultramares Doctrine.She fraudulently prepared financial documents for her client,Star,Inc.Her client presented the information to Moonglow,Inc.Moonglow was a potential creditor of Star,Inc. ,and was seriously damaged by the fraudulent financial information.Moonglow sued Nancy.She claims she is not liable to Moonglow,a third party,since she was not provided with its name at the time the audit was prepared.Is she liable to Moonglow? Explain.

Accepted Answer

Yes.Any time an accountant or auditor co

Question 12

Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?

Accepted Answer

A) Congress established the Public Company Accounting Oversight Board,which has the authority to regulate public accounting firms,establishing audit rules and ethics guidelines. 
B) After five years with a client,the lead audit partner must rotate off the account for at least five years. 
C) Congress established the American Institute of Certified Public Accountants to develop ethical guidelines in a Code of Professional Conduct. 
D) Auditors must communicate regularly and completely with audit committees of their clients and must describe options the firm considers in preparing financial statements. 
A) Congress established the Public Company Accounting Oversight Board,which has the authority to regulate public accounting firms,establishing audit rules and ethics guidelines. 
B) After five years with a client,the lead audit partner must rotate off the account for at least five years. 
C) Congress established the American Institute of Certified Public Accountants to develop ethical guidelines in a Code of Professional Conduct. 
D) Auditors must communicate regularly and completely with audit committees of their clients and must describe options the firm considers in preparing financial statements.

Question 13

What was at issue in the case Oregon Steel Mills,Inc.v.Coopers & Lybrand,LLP?

Accepted Answer

A) whether an accounting firm was liable for its client's loss 
B) whether the Securities Act of 1933 was constitutional 
C) the extent of liability a fraudulent accountant should assume 
D) breach of the accountant-client privilege 
A) whether an accounting firm was liable for its client's loss 
B) whether the Securities Act of 1933 was constitutional 
C) the extent of liability a fraudulent accountant should assume 
D) breach of the accountant-client privilege

Question 14

An engagement letter is a written contract

Accepted Answer

A) between an accountant and client. 
B) in anticipation of marriage. 
C) between a corporation and the AICPA. 
D) intended to create a fiduciary duty of an accountant to his client. 
A) between an accountant and client. 
B) in anticipation of marriage. 
C) between a corporation and the AICPA. 
D) intended to create a fiduciary duty of an accountant to his client.

Question 15

Ron is an accountant who was contacted by Zebra Toy Company to prepare financial statements.Zebra Toy Company told Ron that it wished to present these documents to Lion Wholesalers,Inc. ,a large supplier of toys.If Lion is convinced that Zebra Toy Company is financially solid,it will issue Zebra a large line of credit.
​
After Ron prepares the financial documents,Zebra presents the information to Lion Wholesalers and also to Tiger Toy Company,another wholesaler of toys.Zebra wishes to obtain a line of credit from Tiger as well as from Lion.If Ron committed a serious error by overstating Zebra Toy Company's financial soundness and the two creditors,Lion and Tiger,are damaged as a result,can these third parties recover damages from Ron? Explain.

Accepted Answer

The answer depends on what rule the stat

Question 16

If a plaintiff is successful in proving that an auditor has violated Section 10(b)of the 1934 Securities Exchange Act,the auditor has

Accepted Answer

A) primary liability. 
B) secondary liability. 
C) contingent liability. 
D) rebuttable liability. 
A) primary liability. 
B) secondary liability. 
C) contingent liability. 
D) rebuttable liability.

Question 17

Ralco was preparing Heidi's tax return.In confidence,Heidi revealed some information to Ralco.Under the federal accountant-client privilege,the information Heidi disclosed is protected from disclosure in a criminal action by the U.S.government.

Accepted Answer

A) True 
 B)False

Question 18

GBH,an accounting firm,was hired to prepare financial statements for E-treme.GBH

Accepted Answer

A) cannot show the working papers to E-treme unless there is a valid court order. 
B) cannot show the working papers to E-treme unless it obtains permission from the AICPA. 
C) can show the working papers to anyone that asks,since the accountant owns them. 
D) must allow E-treme access to the working papers. 
A) cannot show the working papers to E-treme unless there is a valid court order. 
B) cannot show the working papers to E-treme unless it obtains permission from the AICPA. 
C) can show the working papers to anyone that asks,since the accountant owns them. 
D) must allow E-treme access to the working papers.

Question 19

After completing an audit,the most unfavorable opinion an auditor can issue is a disclaimer of opinion.

Accepted Answer

A) True 
 B)False

Question 20

The IRS files criminal charges against Rich for evasion of federal taxes.Rich's accountant,Sonya,is summoned to appear in court to testify against Rich.The state where the incident occurred recognizes an accountant-client privilege.Does Sonya have to testify in federal court against her client?

Accepted Answer

A) Yes. 
B) Yes,but only if she is granted immunity by her state. 
C) No,the federal court must recognize her state's accountant-client privilege. 
D) No,the federal accountant-client privilege will protect her from testifying. 
A) Yes. 
B) Yes,but only if she is granted immunity by her state. 
C) No,the federal court must recognize her state's accountant-client privilege. 
D) No,the federal accountant-client privilege will protect her from testifying.

Exam 27: Accountants Liability

Teresa is suing her accountant for fraud.To win,Teresa must show that she justifiably relied on the accountant's fraudulent statement.

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank.Under the Ultramares doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

Generally accepted accounting principles (GAAP)are the rules for preparing financial statements.

In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?

GBH,an accounting firm,was hired to prepare financial statements for E-treme.Great State Bank has asked to see GBH's working papers since it is thinking about extending a $4 million line of credit to E-treme.Which of the following statements is correct?

Halbeck,LLC was negligent in its audit of E-treme,Inc.Unbeknownst to Halbeck,E-treme used the financial statements to secure a loan from Great State Bank.Under the foreseeable doctrine,Halbeck will be liable to Great State Bank for its losses on the loan.

An auditor for Ralco Accounting firm was auditing the financial statements of E-prise.The auditor suspected that E-prise was engaged in illegal activity.Under Section 10(b)of the 1934 Act,the auditor is required to notify E-prise's board of directors of the suspicions.

Under SOX,accountants for public companies must keep all audit work papers for at least

An auditor who determines a company is materially misstating certain items on its financial statements should issue a(n)

Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?

What was at issue in the case Oregon Steel Mills,Inc.v.Coopers & Lybrand,LLP?

An engagement letter is a written contract

If a plaintiff is successful in proving that an auditor has violated Section 10(b)of the 1934 Securities Exchange Act,the auditor has

Ralco was preparing Heidi's tax return.In confidence,Heidi revealed some information to Ralco.Under the federal accountant-client privilege,the information Heidi disclosed is protected from disclosure in a criminal action by the U.S.government.

GBH,an accounting firm,was hired to prepare financial statements for E-treme.GBH

After completing an audit,the most unfavorable opinion an auditor can issue is a disclaimer of opinion.

The IRS files criminal charges against Rich for evasion of federal taxes.Rich's accountant,Sonya,is summoned to appear in court to testify against Rich.The state where the incident occurred recognizes an accountant-client privilege.Does Sonya have to testify in federal court against her client?

Introduction to Law

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International Law

Common Law, Statutory Law, and Administrative Law

Constitutional Law

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Crime

Intentional Torts and Business Torts

Negligence, Strict Liability, and Product Liability

Privacy and Internet Law

Introduction to Contracts

Agreement: Offers and Acceptances

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Voidable Contracts: Capacity and Consent

Written Contracts

Third Parties

Contract Termination

Remedies

Practical Contracts

Introduction to Sales

Ownership, Risk and Warranties

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Secured Transactions

Creating a Negotiable Instrument

Liability for Negotiable Instruments

Agency Law

Employment and Labor Law

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Starting a Business: Llcs and Other Options

Partnerships

Life and Death of a Corporation

Management Duties

Shareholder Rights

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