Question 1

List the services that the Sarbanes-Oxley Act prohibits accounting firms from performing for audit clients.

Accepted Answer

In order to make auditors more independe

Question 2

The group responsible for registering public accounting firms that prepare audit reports for issuers; overseeing the audit of public companies; establishing audit report standards and rules; and inspecting,investigating,and enforcing compliance on the part of registered public accounting firms is the:

Accepted Answer

A) FTC. 
B) Public Company Accounting Oversight Board. 
C) SEC. 
D) American Institute of Certified Public Accountants. 
A) FTC. 
B) Public Company Accounting Oversight Board. 
C) SEC. 
D) American Institute of Certified Public Accountants.

Question 3

Juanita works for Chevco but owns no Chevco stock.She buys 10 shares of a new issue of company stock as a savings plan and afterward receives the signed registration statement,which contains an untrue statement of material fact.Because she works for Chevco,she recognizes the error.Can she sue the auditor?

Accepted Answer

A) Yes, under Section 11, proof of reliance is usually not required. 
B) Yes, if she can prove she would not have bought the stock otherwise. 
C) No, because she did not rely on the statement. 
D) No, because there is no privity between Juanita and the auditor. 
A) Yes, under Section 11, proof of reliance is usually not required. 
B) Yes, if she can prove she would not have bought the stock otherwise. 
C) No, because she did not rely on the statement. 
D) No, because there is no privity between Juanita and the auditor.

Question 4

Accountants' liability under the 1933 and 1934 Securities Acts is less extensive and has more limitations than liability under the common law.

Accepted Answer

A) True 
 B)False

Question 5

The Private Securities Litigation Reform Act of 1995 provides that an auditor can be held liable in a private action for any finding,conclusion,or statement expressed in the report the Act requires the auditor to make to the SEC.

Accepted Answer

A) True 
 B)False

Question 6

Accountants are subject to civil liability under the Securities Act of 1933 if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact,but only if reliance on the financial statements is proven.

Accepted Answer

A) True 
 B)False

Question 7

The lead audit partner having primary responsibility for an audit and the partner responsible for reviewing the audit must rotate at least every 3 years.

Accepted Answer

A) True 
 B)False

Question 8

An accountant can ethically disclose a client's confidential information if the accountant complies with:

Accepted Answer

A) the client's request. 
B) Generally Accepted Auditing Standards requirements. 
C) a court order. 
D) All of the above. 
A) the client's request. 
B) Generally Accepted Auditing Standards requirements. 
C) a court order. 
D) All of the above.

Question 9

To whom does an accountant have potential liability?

Accepted Answer

A) To his client only. 
B) To an intended third party beneficiary. 
C) To a foreseen user of the accountant's work. 
D) All of the above. 
A) To his client only. 
B) To an intended third party beneficiary. 
C) To a foreseen user of the accountant's work. 
D) All of the above.

Question 10

Barbara,a CPA,fails to discover a fairly obvious error in the books of her client,Banana Computers.If Ben relies on Barbara's certification of the financial statement in deciding to accept the position of president of the company,Barbara will:

Accepted Answer

A) in most states be liable to Ben as a third party beneficiary of her contract with Banana. 
B) be liable to Ben only if she has a contract with Ben. 
C) not be liable if Ben is not a party to the original contract. 
D) not be liable to Ben unless Ben notified Barbara in advance of his intention to rely on the financials. 
A) in most states be liable to Ben as a third party beneficiary of her contract with Banana. 
B) be liable to Ben only if she has a contract with Ben. 
C) not be liable if Ben is not a party to the original contract. 
D) not be liable to Ben unless Ben notified Barbara in advance of his intention to rely on the financials.

Question 11

An accountant may not disclose the contents of his working papers under any circumstances.

Accepted Answer

A) True 
 B)False

Question 12

The failure by an accountant to use the care of a reasonably competent accountant under the circumstances is:

Accepted Answer

A) negligence. 
B) material breach. 
C) substantial performance. 
D) fraud. 
A) negligence. 
B) material breach. 
C) substantial performance. 
D) fraud.

Question 13

Matthew decides to invest in the stock of a television production company after he reads Edgar's audit,which includes a known falsity as to the value of numerous worthless securities held as corporate assets.If Matthew sues Edgar,he will be entitled to:

Accepted Answer

A) nothing, in a majority of states, since the class of foreseen users of the audit contract does not include potential investors and the general public. 
B) compensatory damages, in a majority of states, if he is a foreseen user of the audit. 
C) nominal damages only. 
D) rescission of his purchase contract. 
A) nothing, in a majority of states, since the class of foreseen users of the audit contract does not include potential investors and the general public. 
B) compensatory damages, in a majority of states, if he is a foreseen user of the audit. 
C) nominal damages only. 
D) rescission of his purchase contract.

Question 14

Taylor,who is conducting an audit of Oakwood Corporation,becomes aware of information that indicates Oakwood was involved in an illegal payment.Discuss Taylor's responsibilities.

Accepted Answer

Taylor must first determine whether an i

Question 15

Audit working papers would include which of the following?

Accepted Answer

A) Records of accounting and auditing procedures and tests performed. 
B) Engagement letters. 
C) A collection of IRS rulings related to auditing in general. 
D) Accountant fees accrued for the year from all accounts. 
A) Records of accounting and auditing procedures and tests performed. 
B) Engagement letters. 
C) A collection of IRS rulings related to auditing in general. 
D) Accountant fees accrued for the year from all accounts.

Question 16

In what situations is the accountant-client privilege recognized?

Accepted Answer

A) It is only recognized in federal court proceedings. 
B) It is recognized by virtue of the common law in most states. 
C) It is recognized only in those states that have enacted statutes creating such a privilege. 
D) It is recognized in most states by reason of court decisions. 
A) It is only recognized in federal court proceedings. 
B) It is recognized by virtue of the common law in most states. 
C) It is recognized only in those states that have enacted statutes creating such a privilege. 
D) It is recognized in most states by reason of court decisions.

Question 17

Which of the following is correct with respect to an accountant's working papers?

Accepted Answer

A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D) All of the above are correct. 
A) The client is held to be the owner of an accountant's working papers. 
B) An accountant must surrender his working papers to his client if the client so requests. 
C) An accountant may not surrender her working papers unless the client consents or a court orders the disclosure. 
D) All of the above are correct.

Question 18

Sara holds 1,000 shares of stock in Starr,Inc.,which she purchased based upon financial statements that Travis had prepared.She now realizes that the statements were false and wants to sue Travis for common law fraud.What is Travis's best defense?

Accepted Answer

A) Sara lacks privity of contract. 
B) Travis gave a broad disclaimer as part of the financial statement. 
C) The false statements were immaterial. 
D) Starr contributed to the misstatement. 
A) Sara lacks privity of contract. 
B) Travis gave a broad disclaimer as part of the financial statement. 
C) The false statements were immaterial. 
D) Starr contributed to the misstatement.

Question 19

Which of the following can be the basis for an accountant's liability under state law?

Accepted Answer

A) Contract law and negligence, but not criminal law. 
B) Tort law, contract law, and criminal law. 
C) Negligence, criminal law, and strict liability. 
D) Intentional torts and negligence, but not contract law. 
A) Contract law and negligence, but not criminal law. 
B) Tort law, contract law, and criminal law. 
C) Negligence, criminal law, and strict liability. 
D) Intentional torts and negligence, but not contract law.

Question 20

What is the basis of an accountant's potential criminal liability in rendering professional services?

Accepted Answer

An accountant's potential crim

Exam 43: Accountants Legal Liability

List the services that the Sarbanes-Oxley Act prohibits accounting firms from performing for audit clients.

Accountants' liability under the 1933 and 1934 Securities Acts is less extensive and has more limitations than liability under the common law.

The Private Securities Litigation Reform Act of 1995 provides that an auditor can be held liable in a private action for any finding,conclusion,or statement expressed in the report the Act requires the auditor to make to the SEC.

Accountants are subject to civil liability under the Securities Act of 1933 if the financial statements they prepare or certify for inclusion in a registration statement contain any untrue statement or omit any material fact,but only if reliance on the financial statements is proven.

The lead audit partner having primary responsibility for an audit and the partner responsible for reviewing the audit must rotate at least every 3 years.

An accountant can ethically disclose a client's confidential information if the accountant complies with:

To whom does an accountant have potential liability?

Barbara,a CPA,fails to discover a fairly obvious error in the books of her client,Banana Computers.If Ben relies on Barbara's certification of the financial statement in deciding to accept the position of president of the company,Barbara will:

An accountant may not disclose the contents of his working papers under any circumstances.

The failure by an accountant to use the care of a reasonably competent accountant under the circumstances is:

Matthew decides to invest in the stock of a television production company after he reads Edgar's audit,which includes a known falsity as to the value of numerous worthless securities held as corporate assets.If Matthew sues Edgar,he will be entitled to:

Taylor,who is conducting an audit of Oakwood Corporation,becomes aware of information that indicates Oakwood was involved in an illegal payment.Discuss Taylor's responsibilities.

Audit working papers would include which of the following?

In what situations is the accountant-client privilege recognized?

Which of the following is correct with respect to an accountant's working papers?

Sara holds 1,000 shares of stock in Starr,Inc.,which she purchased based upon financial statements that Travis had prepared.She now realizes that the statements were false and wants to sue Travis for common law fraud.What is Travis's best defense?

Which of the following can be the basis for an accountant's liability under state law?

What is the basis of an accountant's potential criminal liability in rendering professional services?

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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