Exam 51: Professional Liaility and Accountability

Jody is an attorney. Kelvin is a certified public accountant. At com?mon law, Jody and Kelvin may be liable to clients for

An accountant may be liable for a misleading statement that affects the price of a security even if the accountant acted in good faith.

Marquis Company's liabilities exceed its assets, but the firm's employees falsify its books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to prepare a balance sheet, which is certified to show a net worth. Pure Credit Corporation relies on the balance sheet to make a loan to Marquis. When the firm defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the accounting firm is most likely

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. Under Section 11 of the Securities Act of 1933, Quin may be liable to

Nina, an accountant, prepares for Opal Corporation a financial state?ment that misstates a material fact. The statement is included in Opal's regis?tration statement. Pete, who is in privity with Nina, and Quinn, who is not, each buy Opal stock. Under Section 11 of the Securities Act of 1933, Nina may be liable to

Aiding or assisting in the preparation of a false tax return is a felony.

Yvon is an accountant charged by Zesty Sales, Inc., a client, with negli?gence. Yvon may successfully defend against the claim if she can show that

A client's negligence may constitute a defense to a charge of negligence against an accountant.

Frank is an accountant. Gayla is an attorney. Which professional is most re?stricted from disclosing his or her client's communication?

Traditionally, a professional owed a duty only to those with whom the professional had a direct contractual relationship.

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

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

A public accounting firm is a firm engaged in the practice of accounting "in the public interest."

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

Estes, an accountant, contracts to perform services for Frasier. In performing those services, Estes uncovers a suspicious financial transaction. Estes is most likely not liable if he

Lebron accuses Moe, an attorney, of committing malpractice. Malpractice is

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?

Flynn, an accountant, helps Grange Supply Company prepare and file a false federal corporate income tax return. Under the In?ternal Revenue Code, this is

Professionals can limit their liability for the misconduct of other profes?sionals with whom they work.

Under rules of professional misconduct, an attorney should not engage in conduct involving "deceit."