Question 1

Which of the following is the most common type of corporate structure that is used by accounting firms that operate in the United States?

Accepted Answer

A)  a limited liability partnership 
B)  a corporation 
C)  a cooperative 
D)  a sole trader 
A)  a limited liability partnership 
B)  a corporation 
C)  a cooperative 
D)  a sole trader

Question 2

In the case of Ultramares Corporation vs. Touche, the defendant was found to be not guilty of negligence due to lack of privity of contract.

Accepted Answer

A) True 
 B)False

Question 3

When does an auditor submit a disclaimer of opinion? What is the significance of an auditor's opinion?

Accepted Answer

A disclaimer of opinion expresses the au

Question 4

Under the Sarbanes-Oxley Act, in order to audit a public company, ________.

Accepted Answer

A)  only public accountants must constitute the audit committee 
B)  a public accounting firm must register with the Public Company Accounting Oversight Board (PCAO
B)  
C)  all public accounting firms must assign an accountant who works closely with one client over a long duration of time 
D)  the law of accountant-client privilege must be accepted by the state legislative mechanism 
A)  only public accountants must constitute the audit committee 
B)  a public accounting firm must register with the Public Company Accounting Oversight Board (PCAO
B)  
C)  all public accounting firms must assign an accountant who works closely with one client over a long duration of time 
D)  the law of accountant-client privilege must be accepted by the state legislative mechanism

Question 5

Violations of generally accepted accounting principles (GAAPs) or generally accepted auditing standards (GAASs), or International Financial Reporting Standards (IFRSs), if applicable, are prima facie evidence of negligence in any court action.

Accepted Answer

A) True 
 B)False

Question 6

A qualified opinion is the most favorable opinion that an accountant can render.

Accepted Answer

A) True 
 B)False

Question 7

A disclaimer of opinion is a clause in auditing that a company can claim wherein the auditor is not allowed to access a high-priority portion of a company's financial records.

Accepted Answer

A) True 
 B)False

Question 8

Ordinary negligence by an accountant is not a violation of Section 10(b) and Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 9

The Sarbanes-Oxley Act makes it lawful for an accounting firm to simultaneously provide audit and certain nonaudit services to a public company if the firm is registered.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

Accepted Answer

A)  Section 2(b) of the Robinson-Patman Act 
B)  Section 5 of the Federal Trade Commission 
C)  Section 552 of the Restatement (Second) of Torts 
D)  Section 16 of the Clayton Act 
A)  Section 2(b) of the Robinson-Patman Act 
B)  Section 5 of the Federal Trade Commission 
C)  Section 552 of the Restatement (Second) of Torts 
D)  Section 16 of the Clayton Act

Question 11

When an accountant has behaved negligently causing damage to a third party, the third party ________.

Accepted Answer

A)  cannot sue the accountant under any circumstance 
B)  cannot bring a tort action against the accountant to recover damages 
C)  cannot sue the accountant for breach of contract 
D)  cannot claim constructive but not actual fraud on part of the defendant 
A)  cannot sue the accountant under any circumstance 
B)  cannot bring a tort action against the accountant to recover damages 
C)  cannot sue the accountant for breach of contract 
D)  cannot claim constructive but not actual fraud on part of the defendant

Question 12

An adverse opinion is reflective of a material misstatement or discrepancy in a company's financial records.

Accepted Answer

A) True 
 B)False

Question 13

If an auditor makes a disclaimer of opinion, this means that the auditor is ________.

Accepted Answer

A)  favorable to the company's financial statement matching its performance but notes a few departures from Generally Accepted Accounting Principles (GAAPs) 
B)  unfavorable about the financial statement representing the company's position 
C)  unable to draw a conclusion about the accuracy of the company's financial records owing to lack of information 
D)  favorable of the company's financial statements representing its performance 
A)  favorable to the company's financial statement matching its performance but notes a few departures from Generally Accepted Accounting Principles (GAAPs) 
B)  unfavorable about the financial statement representing the company's position 
C)  unable to draw a conclusion about the accuracy of the company's financial records owing to lack of information 
D)  favorable of the company's financial statements representing its performance

Question 14

The accountant-client privilege is a law that entails that ________.

Accepted Answer

A)  only an accountant can serve as a witness for the client in a court action 
B)  only an accountant's paperwork be taken as prima facie evidence against a client in a court action 
C)  an accountant cannot be called as a witness against a client in a court action 
D)  an accountant does not enjoy work product immunity when a client is accused of gross negligence 
A)  only an accountant can serve as a witness for the client in a court action 
B)  only an accountant's paperwork be taken as prima facie evidence against a client in a court action 
C)  an accountant cannot be called as a witness against a client in a court action 
D)  an accountant does not enjoy work product immunity when a client is accused of gross negligence

Question 15

________ specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements

Accepted Answer

A)  Generally accepted accounting principles 
B)  Generally accepted auditing standards 
C)  Auditor's expert opinions 
D)  General engagements and agreements 
A)  Generally accepted accounting principles 
B)  Generally accepted auditing standards 
C)  Auditor's expert opinions 
D)  General engagements and agreements

Question 16

Which of the following legislations makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC?

Accepted Answer

A)  Section 24 of the Securities Act of 1933 
B)  Tax Reform Act of 1976 
C)  Private Securities Litigation Reform Act of 1995 
D)  Section 10(b) of the Securities Exchange Act of 1934 
A)  Section 24 of the Securities Act of 1933 
B)  Tax Reform Act of 1976 
C)  Private Securities Litigation Reform Act of 1995 
D)  Section 10(b) of the Securities Exchange Act of 1934

Question 17

Third parties cannot sue accountants for breach of contract.

Accepted Answer

A) True 
 B)False

Question 18

The Generally Accepted Auditing Standards (GAASs) are established by the American Institute of Certified Public Accountants.

Accepted Answer

A) True 
 B)False

Question 19

A rule that says that an accountant is liable for negligence to third parties who are projected users of the client's financial statements is known as ________.

Accepted Answer

A)  the foreseeability standard 
B)  the Ultramares doctrine 
C)  the due diligence defense 
D)  the privity of contract 
A)  the foreseeability standard 
B)  the Ultramares doctrine 
C)  the due diligence defense 
D)  the privity of contract

Question 20

Registered accounting firms that audit more than 100 public companies annually are subject to inspection and review by the Public Company Accounting Oversight Board (PCAOB) once a year.

Accepted Answer

A) True 
 B)False

Exam 51: Accountants Duties and Liability

Which of the following is the most common type of corporate structure that is used by accounting firms that operate in the United States?

In the case of Ultramares Corporation vs. Touche, the defendant was found to be not guilty of negligence due to lack of privity of contract.

When does an auditor submit a disclaimer of opinion? What is the significance of an auditor's opinion?

Under the Sarbanes-Oxley Act, in order to audit a public company, ________.

Violations of generally accepted accounting principles (GAAPs) or generally accepted auditing standards (GAASs), or International Financial Reporting Standards (IFRSs), if applicable, are prima facie evidence of negligence in any court action.

A qualified opinion is the most favorable opinion that an accountant can render.

A disclaimer of opinion is a clause in auditing that a company can claim wherein the auditor is not allowed to access a high-priority portion of a company's financial records.

Ordinary negligence by an accountant is not a violation of Section 10(b) and Rule 10b-5.

The Sarbanes-Oxley Act makes it lawful for an accounting firm to simultaneously provide audit and certain nonaudit services to a public company if the firm is registered.

Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties?

When an accountant has behaved negligently causing damage to a third party, the third party ________.

An adverse opinion is reflective of a material misstatement or discrepancy in a company's financial records.

If an auditor makes a disclaimer of opinion, this means that the auditor is ________.

The accountant-client privilege is a law that entails that ________.

________ specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements

Which of the following legislations makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC?

Third parties cannot sue accountants for breach of contract.

The Generally Accepted Auditing Standards (GAASs) are established by the American Institute of Certified Public Accountants.

A rule that says that an accountant is liable for negligence to third parties who are projected users of the client's financial statements is known as ________.

Registered accounting firms that audit more than 100 public companies annually are subject to inspection and review by the Public Company Accounting Oversight Board (PCAOB) once a year.

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Product and Strict Liability

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