Exam 48: B: Professional Liaility and Accountability

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

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

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

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.Velma reads the statement but does not buy the stock.Under Section 11 of the Securities Act of 1933,Quin may be liable to

Craig is an accountant whose clients include Digby National Corporation.Elbert is Craig's attorney.Working papers that Craig develops when preparing financial reports for Digby are owned by

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

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

Professionals are required to deliver competent services.

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

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

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

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

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

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

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

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

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?

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