Question 1

Professionals are required to deliver competent services.

Accepted Answer

A) True 
 B)False  True

Question 2

For a plaintiff to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, ordinary negligence is enough.

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A)  detrimental reliance. 
B)  intent to deceive. 
C)  justifiable reliance. 
D)  materiality. 
A)  detrimental reliance. 
B)  intent to deceive. 
C)  justifiable reliance. 
D)  materiality. B

Question 4

Jim, an attorney, allows a statute of limitations to lapse on a claim by Midwest Manufacturing Company, a client. Jim

Accepted Answer

A)  can be held liable for malpractice. 
B)  has violated an ethical standard but cannot be held liable. 
C)  is subject to criminal penalties under the statute of limitations. 
D)  will be automatically disbarred. 
A)  can be held liable for malpractice. 
B)  has violated an ethical standard but cannot be held liable. 
C)  is subject to criminal penalties under the statute of limitations. 
D)  will be automatically disbarred.

Question 5

Pat, an accountant, includes a false statement in a report for Quantity, Inc., that is filed with the Securities and Exchange Commission. 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 Exchange Act of 1934, liability may attach to

Accepted Answer

A)  Pat's report. 
B)  Quantity's ad. 
C)  Rita's call. 
D)  Stan's purchase. 
A)  Pat's report. 
B)  Quantity's ad. 
C)  Rita's call. 
D)  Stan's purchase.

Question 6

Pace is an attorney, whose clients include Quikfeet Running Shoes Company. Unless Quikfeet has violated securities law, the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Accepted Answer

A)  only to a third party who is a foreseeable user of the information. 
B)  only under a court order (with or without Quikfeet's consent). 
C)  only with Quikfeet's consent. 
D)  under any circumstances. 
A)  only to a third party who is a foreseeable user of the information. 
B)  only under a court order (with or without Quikfeet's consent). 
C)  only with Quikfeet's consent. 
D)  under any circumstances.

Question 7

Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does not finish the work within the contract's deadline. Leslie is

Accepted Answer

A)  liable for breach of contract. 
B)  not liable, because Leslie is a professional. 
C)  not liable, because Leslie's failure must have been Marty's fault. 
D)  not liable, because the work took longer than foreseen. 
A)  liable for breach of contract. 
B)  not liable, because Leslie is a professional. 
C)  not liable, because Leslie's failure must have been Marty's fault. 
D)  not liable, because the work took longer than foreseen.

Question 8

In most courts, accountants are subject to liability for negligence only to their clients.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  negligent or willful misconduct. 
B)  no misconduct. 
C)  only negligent misconduct. 
D)  only willful misconduct. 
A)  negligent or willful misconduct. 
B)  no misconduct. 
C)  only negligent misconduct. 
D)  only willful misconduct.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

An accountant is not liable for a false statement that affects the price of a security if the buyer or seller of the security knew the statement was false.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Under rules of professional conduct, committing a criminal act that reflects adversely on a person's "honesty" is professional misconduct.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  liable if Jim failed to discover a defalcation. 
B)  liable if Jim failed to discover a fraud. 
C)  liable if Jim failed to discover an impropriety. 
D)  not liable. 
A)  liable if Jim failed to discover a defalcation. 
B)  liable if Jim failed to discover a fraud. 
C)  liable if Jim failed to discover an impropriety. 
D)  not liable.

Question 19

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

Accepted Answer

A)  acted with scienter. 
B)  bought or sold a security. 
C)  is incompetent. 
D)  knows nothing about securities. 
A)  acted with scienter. 
B)  bought or sold a security. 
C)  is incompetent. 
D)  knows nothing about securities.

Question 20

An accountant is not liable for a misstatement in a registration statement to a purchaser of securities if the misstatement was not of a material fact.

Accepted Answer

A) True 
 B)False

Exam 48: Professional Liaility and Accountability

Professionals are required to deliver competent services.

For a plaintiff to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, ordinary negligence is enough.

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

Jim, an attorney, allows a statute of limitations to lapse on a claim by Midwest Manufacturing Company, a client. Jim

Pace is an attorney, whose clients include Quikfeet Running Shoes Company. Unless Quikfeet has violated securities law, the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does not finish the work within the contract's deadline. Leslie is

In most courts, accountants are subject to liability for negligence only to their clients.

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

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.

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

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

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

An accountant is not liable for a false statement that affects the price of a security if the buyer or seller of the security knew the statement was false.

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

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

Under rules of professional conduct, committing a criminal act that reflects adversely on a person's "honesty" is professional misconduct.

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

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 accountant is not liable for a misstatement in a registration statement to a purchaser of securities if the misstatement was not of a material fact.

Introduction to Law and Legal Reasoning

Courts and Alternative Dispute Resolution

Court Procedures

Constitutional Authority to Regulate Business

Ethics and Business Decision Making

Intentional Torts and Privacy

Negligence and Strict Liability

Intellectual Property and Internet Law

Criminal Law and Cyber Crime

Nature and Terminology

Agreement in Traditional and E-Contracts

Consideration

Capacity and Legality

Mistakes, Fraud, and Voluntary Consent

The Statute of Frauds

Third Party Rights

Performance and Discharge

Breach of Contract and Remedies

The Formation of Sales and Lease Contracts

Title, Risk, and Insurable Interest

Performance Breach of Sales Lease Contracts

Warranties and Product Liability

International Law in a Global Economy

The Function Creation of Negotiable Instruments

Transferability and Holder in Due Course

Liability, Defenses, and Discharge

Checks and Banking in the Digital Age

Creditors Rights and Remedies

Secured Transactions

Bankruptcy Law

Mortgages Foreclosures After the Recession

Agency Formation and Duties

Agency Liability and Termination

Employment, Immigration, and Labor Law

Employment Discrimination

Sole Proprietorships and Franchises

Partnerships and Limited Liability Partnerships

Limited Liability Companies Special Business Forms

Corporate Formation and Financing

Corporate Directors, Officers, Shareholders

Corporate Merger, Consolidation, Termination

Securities Law Corporate Governance

Law for Small Business

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

Personal Property and Bailments

Real Property Landlord-Tenant Relationships

Insurance

Wills and Trusts

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