Exam 46: Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals

Proof of aiding and abetting another person's securities violation is not sufficient misconduct to overcome the privity requirement of Section 12(a)(2)of the Securities Act of 1933.

Which of the following tests requires a professional to know the name of the nonclient who will use his/her work product and the particular purpose for which that person will use the work product?

Mr.Blue is a very good accountant at Supermart Inc.Mr.Blue acts with great care and accuracy.But with changing laws and various inaccurate information provided to him by other employees,Mr.Blue is responsible for Supermart owing the IRS $50,000.The CEO of Supermart wants to discharge and sue Mr.Blue for failure to exercise professional care (i.e. ,professional negligence).Mr.Blue is liable for professional negligence and can be discharged and sued for the mistake.

Nast Corp.orally engaged Baker & Co. ,CPAs,to audit its financial statements.The management of Nast informed Baker that it suspected the accounts receivable were materially overstated.Although the financial statements audited by Baker did,in fact,include a materially overstated accounts receivable balance,Baker issued an unqualified opinion.Nast relied on the financial statements in deciding to obtain a loan from Century Bank to expand its operations.Nast has defaulted on the loan and has incurred a substantial loss.If Nast sues Baker for negligence in failing to discover the overstatement,Baker's best defense would be that:

Kaye Piper buys 1,000 common shares of Sullivan Corp.in an offering of shares made pursuant to a Rule 506 exemption from the registration provisions of the Securities Act.For this purchase,Kaye relied on financial statements audited by Armer & Lander LLP (AL),a CPA firm.The statements materially overstated Sullivan's inventory and earnings because AL's staff auditors counted inventory boxes but did not confirm whether any of the boxes had inventory in them.Thirty percent of those boxes were empty.Does AL have potential liability to Kaye under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934 or Section 12(a)(2)of the Securities Act of 1933?

The duty of trust requires a professional to maintain confidentiality.

The Private Securities Litigation Reform Act of 1995 requires an auditor to:

An accountant performing an audit of a client has a specific duty to uncover an employee's embezzlement from the client.

Which of the following statements about limited liability partnerships is true?

Under which of the following will courts refuse to intervene in a dispute between litigants when both have engaged in wrongdoing?

Which of the following is correct concerning qualified opinions,disclaimers of opinions,and unaudited financial statements?

The work papers and documents that a professional receives from a client to perform services like auditing or accounting will remain the property of the client.

Which of the following created an independent board that oversees the audits of public companies?

For proving liability of a professional under ________,privity of contract between the plaintiff and the defendant is required.

Who amongst the following can be held liable under Section 12(a)(2)of the Securities Act of 1933?

In which of the following contexts is a professional most likely to experience a nonclient action?

A professional may delegate his/her duty without the consent of the client.

Judge Blue is evaluating a case of professional negligence involving a claim against an auditor.Where will Judge Blue look to determine what the ordinary standard of care is for the auditing profession?

Which of the following statements about the Public Company Accounting Oversight Board (PCAOB)is false?

Incorporated professionals can escape liability for their associate's torts unless: