Question 1

Which of the following statements is true of the generally accepted accounting principle (GAAP)?

Accepted Answer

A)  It is used by auditors as a guide for their nonaudit services only. 
B)  It is the accepted form of accounting principles around the world. 
C)  It cannot be modified once established by the American Institute of Certified Public Accountants. 
D)  It sets rules for how corporations must set their accounts on their financial statements. 
A)  It is used by auditors as a guide for their nonaudit services only. 
B)  It is the accepted form of accounting principles around the world. 
C)  It cannot be modified once established by the American Institute of Certified Public Accountants. 
D)  It sets rules for how corporations must set their accounts on their financial statements. D

Question 2

Which of the following provides the broadest standard for holding accountants liable to third parties for negligence?

Accepted Answer

A)  due diligence defense 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  nolo contendere 
A)  due diligence defense 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  nolo contendere B

Question 3

Federal law allows for discovery of an accountant's work papers in a federal case against the accountant's client.

Accepted Answer

A) True 
 B)False  True

Question 4

Standards for the preparation and presentation of financial statements are known as ________.

Accepted Answer

A)  engagements and agreements 
B)  auditor's opinions 
C)  generally accepted accounting principles 
D)  generally accepted auditing standards 
A)  engagements and agreements 
B)  auditor's opinions 
C)  generally accepted accounting principles 
D)  generally accepted auditing standards

Question 5

Which of the following is true of the Public Company Accounting Oversight Board?

Accepted Answer

A)  All members of the Public Company Accounting Oversight Board have to be certified public accountants (CPAs). 
B)  The Public Company Accounting Oversight Board was created by the Tax Reform Act of 1976. 
C)  The Securities and Exchange Commission (SE
C)  has oversight and enforcement authority over the board and its functioning. 
D)  The Public Company Accounting Oversight Board lacks the power to initiate any disciplinary actions against defaulting accountants. 
A)  All members of the Public Company Accounting Oversight Board have to be certified public accountants (CPAs). 
B)  The Public Company Accounting Oversight Board was created by the Tax Reform Act of 1976. 
C)  The Securities and Exchange Commission (SE
C)  has oversight and enforcement authority over the board and its functioning. 
D)  The Public Company Accounting Oversight Board lacks the power to initiate any disciplinary actions against defaulting accountants.

Question 6

Why do accountants come under the purview of Section 18(a) of the Securities Exchange Act of 1934?

Accepted Answer

A)  because they often file reports and other documents with the Securities and Exchange Commission (SE
C)  on behalf of clients 
B)  because certified public accountants (CPAs) are directly employed by the Securities and Exchange Commission (SE
C)  
C)  because all companies require an accountant's approval before buying securities from the Securities and Exchange Commission (SE
C)  
D)  because securities can only be bought through a certified public accountant (CP
A)  
A)  because they often file reports and other documents with the Securities and Exchange Commission (SE
C)  on behalf of clients 
B)  because certified public accountants (CPAs) are directly employed by the Securities and Exchange Commission (SE
C)  
C)  because all companies require an accountant's approval before buying securities from the Securities and Exchange Commission (SE
C)  
D)  because securities can only be bought through a certified public accountant (CP
A)

Question 7

A qualified opinion can be defined as a verification of a company's books and records by a certified accountant.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following opinions would an auditor make for a company that, he or she feels, has materially misstated certain items on its financial statements?

Accepted Answer

A)  an unqualified opinion 
B)  an adverse opinion 
C)  a qualified opinion 
D)  a disclaimer of opinion 
A)  an unqualified opinion 
B)  an adverse opinion 
C)  a qualified opinion 
D)  a disclaimer of opinion

Question 9

Under the foreseeability standard, an accountant is liable even if he or she had no knowledge of the intended user of the audited financial statements.

Accepted Answer

A) True 
 B)False

Question 10

A(n) ________ is an auditor's opinion that states that the financial statements are fairly represented except for, or subject to, a departure from Generally Accepted Accounting Principles (GAAPs), a change in accounting principles, or a material uncertainty.

Accepted Answer

A)  unqualified opinion 
B)  qualified opinion 
C)  adverse opinion 
D)  disclaimer of opinion 
A)  unqualified opinion 
B)  qualified opinion 
C)  adverse opinion 
D)  disclaimer of opinion

Question 11

Which of the following rules provides that an accountant is liable only for negligence to third parties who are members of a limited class of intended users of the client's financial statements?

Accepted Answer

A)  Section 552 of the Restatement (Second) of Torts 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  due diligence defense 
A)  Section 552 of the Restatement (Second) of Torts 
B)  the foreseeability standard 
C)  the Ultramares doctrine 
D)  due diligence defense

Question 12

Holly Lane is an accountant with Mildred & Lane Co. and she has recently been asked to visit Maine Manufacturers to survey their financial records, assess their compliance with federal and state laws, and provide an opinion reflecting the state of the company's financial records. Holly's assessment of the financial records of Maine Manufacturers is called a(n) ________.

Accepted Answer

A)  probate 
B)  audit 
C)  arraignment 
D)  easement 
A)  probate 
B)  audit 
C)  arraignment 
D)  easement

Question 13

The Securities Exchange Commission (SEC) has oversight and enforcement authority over the Public Company Accounting Oversight Board (PCAOB).

Accepted Answer

A) True 
 B)False

Question 14

If a state has passed the accountant-client privilege law, it implies that only an accountant can serve as a witness in a case against the client.

Accepted Answer

A) True 
 B)False

Question 15

A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a) of the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 16

Give an account of the Private Securities Litigation Reform Act of 1995.

Accepted Answer

The Private Securities Litigation Reform

Question 17

Accountants can be held liable for negligence in preparing unaudited financial statements.

Accepted Answer

A) True 
 B)False

Question 18

The Financial Accounting Standards Board (FASB) issues new Generally Accepted Accounting Principle (GAAP) rules and amends existing ones.

Accepted Answer

A) True 
 B)False

Question 19

An unqualified opinion would entail that the company's financial statements have some deviation from Generally Accepted Accounting Principles (GAAPs).

Accepted Answer

A) True 
 B)False

Question 20

Explain Section 552 of the Restatement (Second) of Torts.

Accepted Answer

Section 552 of the Restatement (Second)

Exam 51: Accountants Duties and Liability

Which of the following statements is true of the generally accepted accounting principle (GAAP)?

Which of the following provides the broadest standard for holding accountants liable to third parties for negligence?

Federal law allows for discovery of an accountant's work papers in a federal case against the accountant's client.

Standards for the preparation and presentation of financial statements are known as ________.

Which of the following is true of the Public Company Accounting Oversight Board?

Why do accountants come under the purview of Section 18(a) of the Securities Exchange Act of 1934?

A qualified opinion can be defined as a verification of a company's books and records by a certified accountant.

Which of the following opinions would an auditor make for a company that, he or she feels, has materially misstated certain items on its financial statements?

Under the foreseeability standard, an accountant is liable even if he or she had no knowledge of the intended user of the audited financial statements.

A(n) ________ is an auditor's opinion that states that the financial statements are fairly represented except for, or subject to, a departure from Generally Accepted Accounting Principles (GAAPs), a change in accounting principles, or a material uncertainty.

Which of the following rules provides that an accountant is liable only for negligence to third parties who are members of a limited class of intended users of the client's financial statements?

The Securities Exchange Commission (SEC) has oversight and enforcement authority over the Public Company Accounting Oversight Board (PCAOB).

If a state has passed the accountant-client privilege law, it implies that only an accountant can serve as a witness in a case against the client.

A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a) of the Securities Act of 1933.

Give an account of the Private Securities Litigation Reform Act of 1995.

Accountants can be held liable for negligence in preparing unaudited financial statements.

The Financial Accounting Standards Board (FASB) issues new Generally Accepted Accounting Principle (GAAP) rules and amends existing ones.

An unqualified opinion would entail that the company's financial statements have some deviation from Generally Accepted Accounting Principles (GAAPs).

Explain Section 552 of the Restatement (Second) of Torts.

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