Exam 32: Legal Liability of Accountantspart Six Property

Zain retained Linda,an accountant,to prepare his federal income tax return.In the course of preparing the return,Linda had several conferences with Zain,during which she made notes.In addition,Zain furnished Linda with a number of documents concerning transactions in which Zain had been involved.The Internal Revenue Service (IRS)ultimately brought suit against Zain,claiming that he had underpaid his actual tax liability by a substantial amount.The IRS arranged for a subpoena to be served on Linda.The subpoena purported to require her to produce,in court,Zain's documents and the notes she had made during conversations with Zain.Linda sought to resist the order on the basis that the conversations were held in confidence,for the purpose of preparing Zain's tax return,and that the notes were made and documents were delivered in furtherance of the same purpose.Linda claimed,therefore,that what the IRS sought was privileged information and that since neither she nor Zain had waived the privilege,she should not have to produce what the IRS sought.Is Linda's argument sound? Explain.

State licensing boards that regulate the ethical conduct of the accounting profession strictly regulate the accountants' right to advertise their services to the public.

In an administrative hearing conducted by the Securities and Exchange Commission (SEC),an accountant who violates the federal securities acts is given final order by the administrative law judge.

An accountant who shows a reckless disregard for the truth may be said to be acting with scienter.

Describe the accountant-client privilege.

Which of the following statements is true of intentional misrepresentation?

Under the Reasonably Foreseeable Users approach,_____.

The Restatement approach to third-party negligence suits against accountants:

Section 18(a)of the Securities Act of 1934:

Under the Restatement approach,the accountant is liable only to those third parties who are "specifically foreseeable."

Lack of negligence can be proved by demonstrating that an accountant was in compliance with generally accepted accounting principles (GAAP)and generally accepted auditing standards (GAAS).

Which of the following statements is true of the Sarbanes-Oxley Act of 2002?

An accountant cannot be held liable for aiding and abetting misleading information if the information were prepared by others.

Which of the following is an approach to third-party negligence actions?

After an independent audit,an accountant certifies the financial statement by issuing a(n)_____.

List the five major judicial approaches to third-party negligence actions.

Edward,an accountant,certified a client's financial statements because he believed they were correct on the basis of his use of standard accounting and auditing practices.Later,while doing further work for the same client,Edward discovered information leading him to the conclusion that the financial statements he had certified were false and misleading.Which of the following statements is true of this scenario?

Accuracy Group,an accounting firm,has been given a deadline by its client to prepare an audit report by February 28.The deadline was proposed by a prospective lender to the client.Accuracy Group agrees to complete the audit by February 28.If the audit report is not finished until after the deadline,then Accuracy Group would:

An accountant may have conducted such a limited audit that she does not feel able to offer an opinion as to the accuracy of the client's financial statements.In such situations,the accountant may issue a(n)_____.

Jiang,an accountant,is assigned by Wanley Inc.to perform an audit and prepare an annual report for its shareholders.Jiang fails to execute his duty with sincerity as he fails to discover embezzlement by a chief accountant of the firm,which is later discovered by the firm's creditors.In this scenario,Jiang's breach of duty might also trigger an action in breach of the contract between Jiang and Wanley Inc.because: