Question 1

An accountant is negligent if she does not exercise the degree of care a reasonably competent accountant would exercise under the circumstances.

Accepted Answer

A) True 
 B)False

Question 2

An accountant's legal responsibility under state law may be based on:

Accepted Answer

A) contract law. 
B) tort law. 
C) criminal law. 
D) All of the above. 
A) contract law. 
B) tort law. 
C) criminal law. 
D) All of the above.

Question 3

When can an accountant release audit working papers?

Accepted Answer

A) When a client consents. 
B) When a court orders disclosure. 
C) At any time at the discretion of the accountant. 
D) Both (a) and (b). 
A) When a client consents. 
B) When a court orders disclosure. 
C) At any time at the discretion of the accountant. 
D) Both (a) and (b).

Question 4

An accountant's records,including the data-gathering process followed and the information and conclusions drawn therefrom,are known as:

Accepted Answer

A) tax returns. 
B) working papers. 
C) rough drafts. 
D) privileged communication. 
A) tax returns. 
B) working papers. 
C) rough drafts. 
D) privileged communication.

Question 5

An accountant who willfully violates Section 11 of the 1933 Securities Act is subject only to civil liability.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Accepted Answer

A) Privity and due diligence. 
B) Privity, but not due diligence. 
C) Due diligence, but not privity. 
D) Neither privity nor due diligence. 
A) Privity and due diligence. 
B) Privity, but not due diligence. 
C) Due diligence, but not privity. 
D) Neither privity nor due diligence.

Question 7

Mary tells her accountant,"I must have this year's audit completed by March 1,and time is of the essence." The accountant agrees to complete the audit by March 1.Under general contract law,if the audit is not completed by March 1,Mary does not have to pay the accountant for the audit.

Accepted Answer

A) True 
 B)False

Question 8

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Accepted Answer

A) Civil liability where there is scienter. 
B) Criminal liability where there is a willful violation. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct. 
A) Civil liability where there is scienter. 
B) Criminal liability where there is a willful violation. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct.

Question 9

Anna has a contract to perform accounting services for Intercend Corporation.She breaches her contract in a nonmaterial way.Which of the following is correct with respect to Anna's liability?

Accepted Answer

A) Anna is not entitled to any compensation for her services. 
B) Anna may have liability to third party intended beneficiaries. 
C) Anna is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D) Two of the above, (a) and (b) are correct. 
E) Two of the above, (b) and (c) are correct. 
A) Anna is not entitled to any compensation for her services. 
B) Anna may have liability to third party intended beneficiaries. 
C) Anna is entitled to the contractually agreed upon fee less any damages or loss her breach has caused her clients. 
D) Two of the above, (a) and (b) are correct. 
E) Two of the above, (b) and (c) are correct.

Question 10

A group of investors brings a class action lawsuit against the Z & R Accounting Firm under Section 10b and Rule 10b-5 of the 1934 Securities Act.Angela,an accountant with the firm,had done an audit of the Pennymart Inc.books.The audit failed to disclose that Orrin,the president of Pennymart,had stolen large amounts of cash from the firm.Pennymart eventually filed for bankruptcy as a result of the thefts.What is the likely result of the suit?

Accepted Answer

In general,accountants may be held civil

Question 11

An accounting firm may perform both bookkeeping services and audits for the same client.

Accepted Answer

A) True 
 B)False

Question 12

Edmund,who is auditing the books of Windgrove Co.,becomes aware of information indicating an illegal act within the company.Edmund must:

Accepted Answer

A) determine whether an illegal act occurred and, if it did, the possible effect on Windgrove's financial statements. 
B) notify the SEC immediately so it can conduct an investigation. 
C) resign immediately to avoid criminal liability. 
D) notify local law enforcement and remove himself from any association with the company. 
A) determine whether an illegal act occurred and, if it did, the possible effect on Windgrove's financial statements. 
B) notify the SEC immediately so it can conduct an investigation. 
C) resign immediately to avoid criminal liability. 
D) notify local law enforcement and remove himself from any association with the company.

Question 13

Which of the following is untrue regarding the relationship of an accountant and the client?

Accepted Answer

A) It is based upon mutual agreement. 
B) The accountant is under an ethical obligation not to disclose confidential information. 
C) The accountant must act in a competent and professional manner. 
D) The accountant is under a contractual obligation to follow all of the client's instructions and to use the client's figures without question. 
A) It is based upon mutual agreement. 
B) The accountant is under an ethical obligation not to disclose confidential information. 
C) The accountant must act in a competent and professional manner. 
D) The accountant is under a contractual obligation to follow all of the client's instructions and to use the client's figures without question.

Question 14

An accountant has no liability to parties other than the client.

Accepted Answer

A) True 
 B)False

Question 15

A five-member Public Company Accounting Oversight Board oversees the audit of public companies,and the SEC oversees the Board.

Accepted Answer

A) True 
 B)False

Question 16

Protected individuals under the Restatement view of tort liability for an accountant include potential investors and the general public.

Accepted Answer

A) True 
 B)False

Question 17

An accountant who willfully violates Section 11 of the Securities Act of 1933 is subject to fines of up to $100,000 or imprisonment of not more than three years,or both.

Accepted Answer

A) True 
 B)False

Question 18

In the Ernst & Ernst v.Hochfelder case,the Supreme Court stated that Section 10(b)of the 1934 Act and SEC Rule 10b-5 apply only to intentional conduct and not to negligence.

Accepted Answer

A) True 
 B)False

Question 19

Wurst & Wurst is the accounting firm that has been used by the Intercontinental Bank for over twenty years.Tim approached Alfred,a Wurst partner,at a cocktail party.Tim asked about the bank's stability.Although Alfred knew that the bank's stock was overvalued because of some questionable loans,he felt a considerable amount of loyalty to the bank for being a good customer of his accounting firm.Alfred told Tim that Wurst had just finished an audit of the bank,and that the bank was as sound as the Rock of Gibraltar.The next day Tim bought 1,000 shares of Intercontinental.One month later,the bank's losses became the subject of a major financial scandal.Tim is angry and wants to sue.Does he have a case?

Accepted Answer

Yes,under Rule 10b-5,an accountant may b

Question 20

To lessen his tax liability,a client asks his accountant to misstate information on his tax return.If the accountant does so,she may be subject to fines and up to three years in prison.

Accepted Answer

A) True 
 B)False

Exam 43: Accountants Legal Liability

An accountant is negligent if she does not exercise the degree of care a reasonably competent accountant would exercise under the circumstances.

An accountant's legal responsibility under state law may be based on:

When can an accountant release audit working papers?

An accountant's records,including the data-gathering process followed and the information and conclusions drawn therefrom,are known as:

An accountant who willfully violates Section 11 of the 1933 Securities Act is subject only to civil liability.

Which of the following defenses may be raised by an accountant under Section 11 of the 1933 Securities Act?

Mary tells her accountant,"I must have this year's audit completed by March 1,and time is of the essence." The accountant agrees to complete the audit by March 1.Under general contract law,if the audit is not completed by March 1,Mary does not have to pay the accountant for the audit.

What sort of liability does an accountant have under the Securities Exchange Act of 1934?

Anna has a contract to perform accounting services for Intercend Corporation.She breaches her contract in a nonmaterial way.Which of the following is correct with respect to Anna's liability?

An accounting firm may perform both bookkeeping services and audits for the same client.

Edmund,who is auditing the books of Windgrove Co.,becomes aware of information indicating an illegal act within the company.Edmund must:

Which of the following is untrue regarding the relationship of an accountant and the client?

An accountant has no liability to parties other than the client.

A five-member Public Company Accounting Oversight Board oversees the audit of public companies,and the SEC oversees the Board.

Protected individuals under the Restatement view of tort liability for an accountant include potential investors and the general public.

An accountant who willfully violates Section 11 of the Securities Act of 1933 is subject to fines of up to $100,000 or imprisonment of not more than three years,or both.

In the Ernst & Ernst v.Hochfelder case,the Supreme Court stated that Section 10(b)of the 1934 Act and SEC Rule 10b-5 apply only to intentional conduct and not to negligence.

To lessen his tax liability,a client asks his accountant to misstate information on his tax return.If the accountant does so,she may be subject to fines and up to three years in prison.

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Financial Structure of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Consumer Protection

Environmental Law

International Business Law

Introduction to Property, property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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