Question 1

Commerce Bank files a suit against Drake, its former accountant, alleging constructive fraud. Drake may be held liable

Accepted Answer

A)  if Commerce Bank cannot prove actual fraud.
B)  if Drake was grossly negligent in the performance of his duties.
C)  only if Drake acted with fraudulent intent.
D)  only if Drake impersonated someone who could be liable for fraud. B

Question 2

Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

Accepted Answer

A)  actual fraud.
B)  constructive fraud.
C)  destructive fraud.
D)  virtual fraud. A

Question 3

In some states, an accountant is potentially liable to any user who relies on the professional's statement or report whether or not the reliance was foreseeable.

Accepted Answer

A) True 
 B)False  False

Question 4

Reed prepares federal corporate income tax returns for Shopping Mall Inc. and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Reed may be liable for

Accepted Answer

A)  negligent or willful misconduct.
B)  no misconduct.
C)  only negligent misconduct.
D)  only willful misconduct.

Question 5

Norm is an accountant. With respect to an allegation of negligence by Online Retail Inc., one of Norm's clients, Norm's violation of generally accepted accounting principles and generally accepted auditing standards

Accepted Answer

A)  does not indicate that Norm was negligent.
B)  is prima facie evidence that Norman was negligent.
C)  precludes Norm from raising any defense against a negligence claim.
D)  relieves Norm of any legal liability but not professional ethics sanctions.

Question 6

Bee is an accountant whose clients include Concessions Inc. If Bee is negligent in her work for Concessions, most courts would hold her liable to the client and

Accepted Answer

A)  any third party.
B)  no third party with whom the accountant is not in privity or "near privity."
C)  third parties who are foreseen users of the work.
D)  third parties who are reasonably foreseeable users of the work.

Question 7

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

Accepted Answer

A)  bookkeeping.
B)  none of the choices.
C)  appraisal services.
D)  financial systems design.

Question 8

Rand, an accountant, includes a false statement in a report for Social Media Inc. that is filed with the Securities and Exchange Commission. When Teo buys stock in Social Media and loses money on the investment, he files a suit against Rand, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Rand can show that he

Accepted Answer

A)  intended to defraud Social Media, not Teo.
B)  intended to profit on stock trades generally, not only Teo's.
C)  is an otherwise competent accountant.
D)  had no knowledge that the statement was false.

Question 9

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Accepted Answer

A) True 
 B)False

Question 10

Finola, a certified public accountant, provides accounting services to Global Trade Corporation. The services include preparing Global Trade's financial reports and issuing opinion letters based on the reports. In 2014, Global Trade falls into serious financial trouble, but neither Finola's reports nor her opinion letters indicate this situation. Relying on Finola's portrayal of Global Trade's financial situation, the firm borrows a large sum of money to build a new shipping facility. In lending Global Trade the money, Harbor City Bank relies on Finola's opinion letter. Finola is aware of this reliance. If Finola did not engage in intentional fraud but was negligent, what is her potential liability?

Accepted Answer

The answer of Finola, a certified public accountant, provides accounting...

Question 11

To avoid liability for securities violations, an accountant must use due diligence in preparing a financial statement included in a registration statement-merely asking questions of a corporate officer or director meets this standard.

Accepted Answer

A) True 
 B)False

Question 12

The Public Company Accounting Oversight Board oversees the audit of public companies subject to securities laws in order to protect public investors.

Accepted Answer

A) True 
 B)False

Question 13

An accountant who fails to perform for a client as agreed has breached their contract, and the client has the right to pursue a claim for damages.

Accepted Answer

A) True 
 B)False

Question 14

Frye, an accountant, intentionally misstates a material fact to mislead Global Industries Inc., a client. Global justifiably relies on the misstatement to its detriment. Frye is most likely liable for

Accepted Answer

A)  fraud.
B)  malpractice.
C)  negligence.
D)  none of the choices.

Question 15

In some states, a party can recover from an accountant for negligence only outside an accountant-client relationship.

Accepted Answer

A) True 
 B)False

Question 16

Galen prepares a financial statement for Hobby Inc. before a public offering of its stock. The Securities and Exchange Commission orders a revision of the statement. During the subsequent delay of the offering, the stock price drops. Hobby files a suit against Galen for negligence. Galen's best defense is

Accepted Answer

A)  even if the accountant was negligent, this was not the proximate cause of the drop in the stock price.
B)  the firm suffered no injury.
C)  the accountant did not breach any duty of care that it owed to the firm.
D)  the accountant owed no duty of care to the firm.

Question 17

Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?

Accepted Answer

The answer of Miriam is an accountant. Natalie is an...

Question 18

To hold a professional liable for negligence, a plaintiff must show that a duty of care existed and it was breached-proof of an injury is not required.

Accepted Answer

A) True 
 B)False

Question 19

An attorney's commission of a crime constitutes professional misconduct even absent proof that it reflects adversely on the person's fitness as a lawyer.

Accepted Answer

A) True 
 B)False

Question 20

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Accepted Answer

A)  Bell to pay the amount of the fine as damages to the firm.
B)  Bell to meet the next deadline but not to pay damages.
C)  Consumer Staples to drop its suit and pay its fine.
D)  Consumer Staples to secure another professional to finish the work.

Exam 42: Professional Liability and Accountability

Commerce Bank files a suit against Drake, its former accountant, alleging constructive fraud. Drake may be held liable

Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

In some states, an accountant is potentially liable to any user who relies on the professional's statement or report whether or not the reliance was foreseeable.

Reed prepares federal corporate income tax returns for Shopping Mall Inc. and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Reed may be liable for

Norm is an accountant. With respect to an allegation of negligence by Online Retail Inc., one of Norm's clients, Norm's violation of generally accepted accounting principles and generally accepted auditing standards

Bee is an accountant whose clients include Concessions Inc. If Bee is negligent in her work for Concessions, most courts would hold her liable to the client and

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

To avoid liability for securities violations, an accountant must use due diligence in preparing a financial statement included in a registration statement-merely asking questions of a corporate officer or director meets this standard.

The Public Company Accounting Oversight Board oversees the audit of public companies subject to securities laws in order to protect public investors.

An accountant who fails to perform for a client as agreed has breached their contract, and the client has the right to pursue a claim for damages.

Frye, an accountant, intentionally misstates a material fact to mislead Global Industries Inc., a client. Global justifiably relies on the misstatement to its detriment. Frye is most likely liable for

In some states, a party can recover from an accountant for negligence only outside an accountant-client relationship.

Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?

To hold a professional liable for negligence, a plaintiff must show that a duty of care existed and it was breached-proof of an injury is not required.

An attorney's commission of a crime constitutes professional misconduct even absent proof that it reflects adversely on the person's fitness as a lawyer.

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order