Exam 48: Professional Liaility and Accountability

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

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

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

A professional's gross negligence in performing a duty constitutes actual fraud.

Bowie, a certified public accountant, prepares and certifies Candy Products Corporation's financial statements. These statements are included 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 privity 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

Faith and Gordon are accountants who work together. Faith and Gordon can limit their potential liability for each other's misconduct by organizing their business as

Bob, an accountant, intentionally misstates a material fact to mislead Consolidated Industries, Inc., a client. Consolidated justifiably relies on the misstatement to its detriment. Bob is most likely liable for

The Sarbanes-Oxley Act of 2002 applies only to domestic public accounting firms that provide auditing services to "issuers."

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

Rollo is an attorney whose clients include Superior Credit Company. If Rollo is negligent in his work for Superior, under the Restatement (Second) of Torts, Rollo may be liable to Superior and

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

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

Lucille, an accountant, is subject to the accounting conventions, rules, and procedures that constitute generally accepted accounting principles (GAAP). GAAP are determined by

Accountants and other professionals do not face liability under the common law for any breach of contract.

Sian, an accountant, prepares a tax return for a client, Toy Sales Company. Vita, who is not an accountant, prepares a tax return for Wu's business, Xtra Delivery Service. Is an accountant who prepares a tax return for a client liable for any false statements in the return Is a person who is not an accountant and who prepares a tax return for someone else liable for any false statements in the return

An accountant may be liable for a misstatement or omission of material fact in a registration statement.

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

Quin, an accountant, prepares for Reddy, Inc., a financial statement 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

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

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