Question 1

Under Section 11(a)of the 1933 Act,accountants are:

Accepted Answer

A)  liable only if privity of contract is with the purchaser. 
B)  liable for defective registration statements unless they can prove that they exercised due diligence. 
C)  liable only to purchasers who relied upon the omissions or falsities in the registration statements. 
D)  not liable to any purchaser of securities issued pursuant to a defective registration statement. 
A)  liable only if privity of contract is with the purchaser. 
B)  liable for defective registration statements unless they can prove that they exercised due diligence. 
C)  liable only to purchasers who relied upon the omissions or falsities in the registration statements. 
D)  not liable to any purchaser of securities issued pursuant to a defective registration statement. B

Question 2

Section 11(a)of the Securities Act of 1933 imposes liability on accountants for:

Accepted Answer

A)  misstatements or omissions of material facts furnished in registration statements. 
B)  inadvertent error in the information provided by the client. 
C)  accidental miscalculations in audits. 
D)  statements of opinion. 
A)  misstatements or omissions of material facts furnished in registration statements. 
B)  inadvertent error in the information provided by the client. 
C)  accidental miscalculations in audits. 
D)  statements of opinion. A

Question 3

The party asserting the work product privilege bears the burden of establishing that the documents he seeks to protect were prepared in anticipation of litigation.

Accepted Answer

A) True 
 B)False  True

Question 4

A client owns the working papers prepared by an accountant in connection with services performed for the client.

Accepted Answer

A) True 
 B)False

Question 5

Generally accepted accounting principles:

Accepted Answer

A)  limit recovery to those with a direct contractual relationship to the accountant. 
B)  apply to the way business transactions should be recorded. 
C)  give directions to accountants in auditing the books of an enterprise. 
D)  protect the investor who is unknown to the accountant when the financial statements are prepared. 
A)  limit recovery to those with a direct contractual relationship to the accountant. 
B)  apply to the way business transactions should be recorded. 
C)  give directions to accountants in auditing the books of an enterprise. 
D)  protect the investor who is unknown to the accountant when the financial statements are prepared.

Question 6

An accountant's liability to third persons for negligence is generally barred by the privity doctrine unless the accountant should have foreseen that the third party would rely on the audit.

Accepted Answer

A) True 
 B)False

Question 7

When might an accountant issue a qualified opinion and a disclaimer?

Accepted Answer

An accountant might issue a qualified op

Question 8

Which of the following is true of the criminal liabilities under the Securities Act of 1933?

Accepted Answer

A)  A willful misrepresentation, including an omission, in a registration statement is made a criminal act. 
B)  The 1933 Act makes it a crime to willfully make a false or misleading statement in reports that are required to be filed under the act. 
C)  The criminal provisions of the 1933 Act specifically mention that they will be used against accountants. 
D)  A willful violation of Rule 10b-5 is a crime under the 1933 Act. 
A)  A willful misrepresentation, including an omission, in a registration statement is made a criminal act. 
B)  The 1933 Act makes it a crime to willfully make a false or misleading statement in reports that are required to be filed under the act. 
C)  The criminal provisions of the 1933 Act specifically mention that they will be used against accountants. 
D)  A willful violation of Rule 10b-5 is a crime under the 1933 Act.

Question 9

Identify the true statement concerning communications between clients and accountants.

Accepted Answer

A)  In all states, communications between clients and accountants are treated the same way communications between clients and attorneys are treated. 
B)  Communications between clients and accountants are treated by courts as privileged in the vast majority of states. 
C)  Even if a state has a statute that grants protection to accountants' working papers, federal courts do not always recognize such state statutes. 
D)  The accountant can never be forced to testify about the client's records and about conversations that the accountant had with the client. 
A)  In all states, communications between clients and accountants are treated the same way communications between clients and attorneys are treated. 
B)  Communications between clients and accountants are treated by courts as privileged in the vast majority of states. 
C)  Even if a state has a statute that grants protection to accountants' working papers, federal courts do not always recognize such state statutes. 
D)  The accountant can never be forced to testify about the client's records and about conversations that the accountant had with the client.

Question 10

Which of the following statements is true of liability to third persons?

Accepted Answer

A)  Contract law has been widely used by third persons suffering damages as a result of an accountant's breach in the absence of special circumstances. 
B)  At common law, recovery by a creditor was not permitted on the theory that the creditor was a third-party beneficiary of the contract employing the accountant. 
C)  Common law required showing that the accountant was aware that the audit was ordered to satisfy the demand of a creditor or prospective creditor. 
D)  Historically, third-party suits against accountants were generally permitted by the privity doctrine. 
A)  Contract law has been widely used by third persons suffering damages as a result of an accountant's breach in the absence of special circumstances. 
B)  At common law, recovery by a creditor was not permitted on the theory that the creditor was a third-party beneficiary of the contract employing the accountant. 
C)  Common law required showing that the accountant was aware that the audit was ordered to satisfy the demand of a creditor or prospective creditor. 
D)  Historically, third-party suits against accountants were generally permitted by the privity doctrine.

Question 11

Reliance is the most essential element in a case governed by Section 11(a)of the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct with regard to working papers prepared by an accountant?

Accepted Answer

A)  The working papers prepared by the accountant are owned by the client. 
B)  The accountant may need to justify the accountant's work before the Internal Revenue Service or a court. 
C)  The accountant can dispose of the working papers prepared by him or her as he or she pleases. 
D)  The client does not possess the right of access to the working papers. 
A)  The working papers prepared by the accountant are owned by the client. 
B)  The accountant may need to justify the accountant's work before the Internal Revenue Service or a court. 
C)  The accountant can dispose of the working papers prepared by him or her as he or she pleases. 
D)  The client does not possess the right of access to the working papers.

Question 13

Under Section 11 of the Securities Act of 1933,a purchaser must sue the accountant within three years after the time the misstatement or omission in the registration statement was or should have been discovered.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true of misstatements or omissions of material facts in the information furnished by accountants for registration statements?

Accepted Answer

A)  An accountant is not liable to a purchaser of securities issued pursuant to a defective registration statement. 
B)  An accountant's duty is to have a reasonable belief in the accuracy of the figures at the time the registration statement becomes effective. 
C)  A purchaser can recover even if the accountant can demonstrate that the purchaser was aware of the misstatements or omissions in the registration statement before buying the securities. 
D)  A purchaser cannot recover if he has not read the registration statement containing the material misstatements or omissions. 
A)  An accountant is not liable to a purchaser of securities issued pursuant to a defective registration statement. 
B)  An accountant's duty is to have a reasonable belief in the accuracy of the figures at the time the registration statement becomes effective. 
C)  A purchaser can recover even if the accountant can demonstrate that the purchaser was aware of the misstatements or omissions in the registration statement before buying the securities. 
D)  A purchaser cannot recover if he has not read the registration statement containing the material misstatements or omissions.

Question 15

Under the Balancing Approach,in a third-party negligence against an accountant,the third party _____.

Accepted Answer

A)  cannot recover unless in privity 
B)  cannot recover unless the accountant knew the purpose of reports and the identity of user 
C)  may recover when the accountant knew audited material would be used 
D)  may recover if determinative factors make liability desirable 
A)  cannot recover unless in privity 
B)  cannot recover unless the accountant knew the purpose of reports and the identity of user 
C)  may recover when the accountant knew audited material would be used 
D)  may recover if determinative factors make liability desirable

Question 16

An accountant ordinarily does not delegate his or her duties to someone else without the consent of the client.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true of negligence by an accountant?

Accepted Answer

A)  The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant. 
B)  The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook. 
C)  The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant. 
D)  It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud. 
A)  The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant. 
B)  The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook. 
C)  The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant. 
D)  It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud.

Question 18

The Reasonably Foreseeable Users approach exposes a negligent accountant to lesser liability than do the Ultramares and Restatement approaches.

Accepted Answer

A) True 
 B)False

Question 19

Hawthorne Corp.entrusted Edgar,an independent accountant,to prepare an audit report to apply for a loan from Daft Corp.Edgar accepted the accuracy of the client's books without proper investigation while representing that he had completed Hawthorne's audit.A careful audit,however,discovers later that an employee of Hawthorne Inc.was regularly embezzling funds.In this scenario,Edgar:

Accepted Answer

A)  will be liable to Daft Corp. as well as any other creditor who provided loans to Hawthorne Corp. based on his audited financial statements. 
B)  will not be liable to Hawthorne Corp. to return the fee for the audit because the loan was not provided by Daft Corp. 
C)  will be liable to Hawthorne Corp. for any losses it suffered from the time when his audit should have discovered the embezzlement. 
D)  will not be liable to any of the parties as he does not owe them the duty of superior skill or careful scrutiny. 
A)  will be liable to Daft Corp. as well as any other creditor who provided loans to Hawthorne Corp. based on his audited financial statements. 
B)  will not be liable to Hawthorne Corp. to return the fee for the audit because the loan was not provided by Daft Corp. 
C)  will be liable to Hawthorne Corp. for any losses it suffered from the time when his audit should have discovered the embezzlement. 
D)  will not be liable to any of the parties as he does not owe them the duty of superior skill or careful scrutiny.

Question 20

Rule 10b-5 of the Securities Act of 1934 prohibits any person from making a misstatement or omission of a material fact in connection with the:

Accepted Answer

A)  mortgage of real estate. 
B)  mortgage of constructing a building. 
C)  purchase or sale of any security. 
D)  purchase or sale of a property. 
A)  mortgage of real estate. 
B)  mortgage of constructing a building. 
C)  purchase or sale of any security. 
D)  purchase or sale of a property.

Exam 32: Legal Liability of Accountantspart Six Property

Under Section 11(a)of the 1933 Act,accountants are:

Section 11(a)of the Securities Act of 1933 imposes liability on accountants for:

The party asserting the work product privilege bears the burden of establishing that the documents he seeks to protect were prepared in anticipation of litigation.

A client owns the working papers prepared by an accountant in connection with services performed for the client.

Generally accepted accounting principles:

An accountant's liability to third persons for negligence is generally barred by the privity doctrine unless the accountant should have foreseen that the third party would rely on the audit.

When might an accountant issue a qualified opinion and a disclaimer?

Which of the following is true of the criminal liabilities under the Securities Act of 1933?

Identify the true statement concerning communications between clients and accountants.

Which of the following statements is true of liability to third persons?

Reliance is the most essential element in a case governed by Section 11(a)of the Securities Act of 1933.

Which of the following statements is correct with regard to working papers prepared by an accountant?

Under Section 11 of the Securities Act of 1933,a purchaser must sue the accountant within three years after the time the misstatement or omission in the registration statement was or should have been discovered.

Which of the following statements is true of misstatements or omissions of material facts in the information furnished by accountants for registration statements?

Under the Balancing Approach,in a third-party negligence against an accountant,the third party _____.

An accountant ordinarily does not delegate his or her duties to someone else without the consent of the client.

Which of the following statements is true of negligence by an accountant?

The Reasonably Foreseeable Users approach exposes a negligent accountant to lesser liability than do the Ultramares and Restatement approaches.

Rule 10b-5 of the Securities Act of 1934 prohibits any person from making a misstatement or omission of a material fact in connection with the:

Law, Legal Reasoning, and the Legal Profession

Dispute Settlement

Business Ethics and Corporate Social Responsibility

Business and the Constitution

Crimes

Intentional Torts

Negligence and Strict Liability

Licensing and Intellectual Propertypart Two Contracts

The Nature and Origins of Contracts

Creating a Contract: Offers

Creating a Contract: Acceptances

Consideration

Capacity to Contract

Voluntary Consent

Illegality

The Form and Meaning of Contracts

Third Parties Contract Rights

Performance and Remediespart Three Sales

Formation and Terms of Sales Contracts

Warranties and Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contractspart Four Agency and Employment

The Agency Relationship-Creation, duties, and Termination

Liability of Principals and Agents to Third Parties

Employment Laws-Part Five Business Organizations

Which Form of Business Organization

Partnerships

Formation and Termination of Corporations

Management of the Corporate Business

Financing the Corporation and the Role of the Shareholders

Securities Regulation

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Insurance-Part Seven Commercial Paper

Negotiable Instruments

Negotiation and Holder in Due Course

Liability of Parties

Checks and Electronic Fund Transfers-Part Eight Credit Transactions

Introduction to Security

Security Interests in Personal Property

Bankruptcy-Part Nine Government Regulation

The Antitrust Laws

Consumer Protection Laws

Environmental Regulation

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