Exam 48: Professional Liaility and Accountability

Professionals are required to deliver competent services.

In some states,in the absence of privity,a party cannot recover from am accountant.

Dwayne can be described as "a reasonably competent general practitioner of ordinary skill,experience,and capacity." This is the normal standard for judging the performance of

Feder prepares federal corporate income tax returns for Giant Stores,Inc.,and other firms.Under the Internal Revenue Code,with respect to an understatement of a client's tax liability,Feder may be liable for

An accountant normally will be held liable to the client for a mistake in judgment.

Bowie,a certified public accountant,prepares and certifies Candy Products Corporation's financial statements.These statements are in?cluded in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities.Dona buys a security covered by the registration statement.Based on this transaction,Dona files a suit against Bowie under Section 11 and Section 10(b)of the Securities Exchange Act of 1934.To succeed in the suit,what must Dona prove? Bowie responds that Dona was not in priv?ity with him and that even if she had been in privity,she cannot prove his lack of due diligence.Can Bowie prevail on these grounds? Why or why not?

In all cases involving allegations of negligence,the plaintiff must prove that the professional's breach of the duty of care actually caused some injury.

Grover Nut Company files a suit against Hud,its former account?ant,alleging actual fraud.Grover must prove

Quin,an accountant,prepares for Reddy,Inc.,a financial state?ment that omits a material fact.The statement is included in Reddy's registration statement with the Securities and Exchange Commission.Timor,who reads the statement,and Ubi,who does not,each buy Reddy stock.Velma reads the statement but does not buy the stock.Under Section 11 of the Securities Act of 1933,Quin may be liable to

National Business Systems Corporation (NBS)files a suit against Molly,its former accountant,alleging constructive fraud.NBS need not prove

Under the Sarbanes-Oxley Act of 2002,accountants must dispose of working papers relating to an audit or review.

Longhaul Freight,Inc.,files a suit against Midge,an accountant,under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission.To succeed,Longhaul must show that Midge

An attorney may be liable in negligence to any third party.

Generally,an accountant must possess the skills that an ordinarily prudent accountant would have.

Jim,an accountant,contracts to perform services for Kasey.Jim acts in good faith and conforms with generally accepted accounting principles,but makes a mistake in judgment.Jim is most likely

In no states are communications between an accountant and his or her client privileged.

Penelope is an attorney.Penelope's conduct is governed by rules of professional conduct established by the state in which she is licensed,and the Model Rules of Professional Conduct drafted by

Pat,an accountant,includes a false statement in a report for Quantity,Inc.,that is filed with the Securities and Exchange Commis?sion.Quantity publishes a misleading ad about its future prospects.Rita sees the ad and calls Stan,who buys stock in Quantity.Under Section 18 of the Securities Ex?change Act of 1934,liability may attach to

An accountant who performs an audit is liable for failing to detect misconduct even if a normal audit would not have revealed it.

An innocent professional is never liable for a co-professional's misconduct.