Exam 32: Legal Liability of Accountants

Which of the following statements is true of misstatements or omissions of material facts in the information furnished by accountants for registration statements?

After an independent audit, an accountant certifies the financial statement by issuing a(n) _____.

State licensing boards that regulate the ethical conduct of the accounting profession strictly regulate the accountants' right to advertise their services to the public.

Under the Balancing Approach, in a third-party negligence against an accountant, the third party _____.

Hawthorne Corp. entrusted Edgar, an independent accountant, to prepare an audit report to apply for a loan from Daft Corp. Edgar accepted the accuracy of the client's books without proper investigation while representing that he had completed Hawthorne's audit. A careful audit, however, discovers later that an employee of Hawthorne Inc. was regularly embezzling funds. In this scenario, Edgar:

The traditional defenses of contributory negligence and comparative negligence do not apply in a negligence action against an accountant.

The Restatement (Second) of Torts theory of liability imposes less liability on accountants than does the Ultramares rule.

Describe the accountant-client privilege.

Under the Reasonably Foreseeable Users approach, _____.

The working papers that an accountant prepares in making an audit belong to the accountant, not the client.

Under Section 11(a) of the 1933 Act, accountants are:

Jiang, an accountant, is assigned by Wanley Inc. to perform an audit and prepare an annual report for its shareholders. Jiang fails to execute his duty with sincerity as he fails to discover embezzlement by a chief accountant of the firm, which is later discovered by the firm's creditors. In this scenario, Jiang's breach of duty might also trigger an action in breach of the contract between Jiang and Wanley Inc. because:

Edward, an accountant, certified a client's financial statements because he believed they were correct on the basis of his use of standard accounting and auditing practices. Later, while doing further work for the same client, Edward discovered information leading him to the conclusion that the financial statements he had certified were false and misleading. Which of the following statements is true of this scenario?

The Restatement approach to third-party negligence suits against accountants:

Section 11(a) of the Securities Act of 1933 explicitly imposes liability on accountants for misstatements or omissions of material facts in the information they furnish for registration statements required by the 1933 Act.

When an accountant violates a duty, he may be called before an administrative body, but not a judicial body.

Akira purchased a certain number of securities and incurred losses due to a decline in the price of securities in the market. She held her accountant, Jason, liable for her entire loss. Given this information, which of the following statements is true?

Under the near privity approach, an accountant may be liable in negligence to third parties when the:

Under Rule 10b-5 of the Securities Act of 1934, _____.

The accountant issues a(n) _____ if the audited financial statements accurately reflect the client's financial condition in compliance with generally accepted accounting principles.