Question 1

Which of the following statements is correct with regard to working papers prepared by an accountant?

Accepted Answer

A)  The working papers prepared by the accountant are owned by the client. 
B)  The accountant may need to justify the accountant's work before the Internal Revenue Service or a court. 
C)  The accountant can dispose of the working papers prepared by him or her as he or she pleases. 
D)  The client does not possess the right of access to the working papers. 
A)  The working papers prepared by the accountant are owned by the client. 
B)  The accountant may need to justify the accountant's work before the Internal Revenue Service or a court. 
C)  The accountant can dispose of the working papers prepared by him or her as he or she pleases. 
D)  The client does not possess the right of access to the working papers.

Question 2

Which of the following statements is true of intentional misrepresentation?

Accepted Answer

A)  Generally, if an accountant is found liable in fraud, the client is not entitled to recover punitive damages. 
B)  Under a punitive damage award, the client will always receive a lesser amount than his actual loss. 
C)  Generally, in a negligence or contract action, the client is limited to recovering compensatory damages. 
D)  An accountant cannot be liable in fraud for any losses suffered by the client from the time when the audit should have discovered the embezzlement. 
A)  Generally, if an accountant is found liable in fraud, the client is not entitled to recover punitive damages. 
B)  Under a punitive damage award, the client will always receive a lesser amount than his actual loss. 
C)  Generally, in a negligence or contract action, the client is limited to recovering compensatory damages. 
D)  An accountant cannot be liable in fraud for any losses suffered by the client from the time when the audit should have discovered the embezzlement.

Question 3

Explain the near privity approach to third-party negligence suits against accountants.

Accepted Answer

In contrast to the strict privity rule o

Question 4

Generally accepted accounting principles:

Accepted Answer

A)  limit recovery to those with a direct contractual relationship to the accountant. 
B)  apply to the way business transactions should be recorded. 
C)  give directions to accountants in auditing the books of an enterprise. 
D)  protect the investor who is unknown to the accountant when the financial statements are prepared. 
A)  limit recovery to those with a direct contractual relationship to the accountant. 
B)  apply to the way business transactions should be recorded. 
C)  give directions to accountants in auditing the books of an enterprise. 
D)  protect the investor who is unknown to the accountant when the financial statements are prepared.

Question 5

When might an accountant issue a qualified opinion?

Accepted Answer

In some instances, the accountant will i

Question 6

Which of the following statements is true of negligence by an accountant?

Accepted Answer

A)  The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant. 
B)  The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook. 
C)  The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant. 
D)  It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud. 
A)  The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant. 
B)  The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook. 
C)  The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant. 
D)  It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud.

Question 7

Section 10(b) and Rule 10b-5 of the 1934 Act have been the basis of most of the suits by investors against accountants.

Accepted Answer

A) True 
 B)False

Question 8

The duty of care of accountants:

Accepted Answer

A)  is limited to their actions during the audit. 
B)  extends beyond their actions during the audit itself. 
C)  does not allow them to disclose the unreliability of earlier reports. 
D)  does not comply with generally accepted accounting standards. 
A)  is limited to their actions during the audit. 
B)  extends beyond their actions during the audit itself. 
C)  does not allow them to disclose the unreliability of earlier reports. 
D)  does not comply with generally accepted accounting standards.

Question 9

Under Section 11(a) of the Securities Act of 1933, the purchaser can recover even if he had not read the registration statement containing the material misstatements or omissions.

Accepted Answer

A) True 
 B)False

Exam 32: Legal Liability of Accountants

Which of the following statements is correct with regard to working papers prepared by an accountant?

Which of the following statements is true of intentional misrepresentation?

Explain the near privity approach to third-party negligence suits against accountants.

Generally accepted accounting principles:

When might an accountant issue a qualified opinion?

Which of the following statements is true of negligence by an accountant?

Section 10(b) and Rule 10b-5 of the 1934 Act have been the basis of most of the suits by investors against accountants.

The duty of care of accountants:

Under Section 11(a) of the Securities Act of 1933, the purchaser can recover even if he had not read the registration statement containing the material misstatements or omissions.

Law, Legal Reasoning, and the Legal Profession

Dispute Settlement

Business Ethics and Corporate Social Responsibility

Business and the Constitution

Crimes

Intentional Torts

Negligence and Strict Liability

Licensing and Intellectual Property

The Nature and Origins of Contracts

Creating a Contract: Offers

Creating a Contract: Acceptances

Consideration

Capacity to Contract

Voluntary Consent

Illegality

The Form and Meaning of Contracts

Third Parties Contract Rights

Performance and Remedies

Formation and Terms of Sales Contracts

Warranties and Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contracts

The Agency Relationship-Creation, Duties, and Termination

Liability of Principals and Agents to Third Parties

Employment Laws

Which Form of Business Organization

Partnerships

Formation and Termination of Corporations

Management of the Corporate Business

Financing the Corporation and the Role of the Shareholders

Securities Regulation

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Insurance

Negotiable Instruments

Negotiation and Holder in Due Course

Liability of Parties

Checks and Electronic Fund Transfers

Introduction to Security

Security Interests in Personal Property

Bankruptcy

The Antitrust Laws

Consumer Protection Laws

Environmental Regulation

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