Question 1

An accountant who fails to discover every impropriety in a client's books is liable to the client on a negligence theory for any resulting loss.

Accepted Answer

A) True 
 B)False

Question 2

Because of the potential for significant losses to sellers and buyers, under both of the federal securities acts liability is imposed on accountants for all acts of negligence, including "mere" negligence.

Accepted Answer

A) True 
 B)False

Question 3

Leisure Inc.'s accountant is Mel and the firm's attorney is Nola. All states protect, as privileged information, Leisure's communications with

Accepted Answer

A) Mel and Nola. 
B) Mel only. 
C) Nola only. 
D) none of the choices.

Question 4

Dena, an accountant, contracts to perform services for Equipment Maker Inc. Dena acts in good faith and conforms to generally accepted accounting principles but makes an incorrect judgment. Dena is most likely

Accepted Answer

A) liable for negligence. 
B) liable for breach of contract. 
C) liable for a violation of state professional ethical standards. 
D) not liable.

Question 5

Manufacturing Inc. hires Neri, an accountant, to maintain the company's financial records. Neri does not act negligently or fail to perform any duty but fails to discover that Ollie, the firm's chief finance officer, is embezzling funds from the firm. With respect to the corporation's losses, the accountant is

Accepted Answer

A) not liable. 
B) liable for the entire amount. 
C) liable only for the amount that occurred after the accountant was hired. 
D) liable only for the amount that cannot be recovered from the embezzler.

Question 6

Despite a professional's breach of contract, the non-breaching client cannot obtain, as damages, the cost of penalties for failing to meet deadlines.

Accepted Answer

A) True 
 B)False

Question 7

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

Accepted Answer

A) True 
 B)False

Question 8

Sims, an accountant, prepares for Taco Corporation a financial statement that omits a material fact. The financial statement is included in Taco's registration statement, which Uri reads. Uri buys Taco stock. Under Section 11 of the Securities Act of 1933, for Sims to be liable for the omission, Uri must show that he

Accepted Answer

A) relied on the omission. 
B) suffered a loss on the stock. 
C) knew about the omission before making the purchase. 
D) is a sophisticated investor.

Question 9

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

Accepted Answer

A) True 
 B)False

Question 10

In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

Accepted Answer

A) True 
 B)False

Question 11

In most states, an attorney may be liable for negligence to a non-client who the attorney knows or reasonably should know will rely on the attorney's opinion.

Accepted Answer

A) True 
 B)False

Question 12

Reliant Inc. files a suit against Saul, 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, Reliant must show that Saul

Accepted Answer

A) acted with scienter . 
B) bought or sold a security. 
C) is incompetent. 
D) knows nothing about securities .

Exam 42: Professional Liability and Accountability

An accountant who fails to discover every impropriety in a client's books is liable to the client on a negligence theory for any resulting loss.

Because of the potential for significant losses to sellers and buyers, under both of the federal securities acts liability is imposed on accountants for all acts of negligence, including "mere" negligence.

Leisure Inc.'s accountant is Mel and the firm's attorney is Nola. All states protect, as privileged information, Leisure's communications with

Dena, an accountant, contracts to perform services for Equipment Maker Inc. Dena acts in good faith and conforms to generally accepted accounting principles but makes an incorrect judgment. Dena is most likely

Despite a professional's breach of contract, the non-breaching client cannot obtain, as damages, the cost of penalties for failing to meet deadlines.

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

In most states, an attorney may be liable for negligence to a non-client who the attorney knows or reasonably should know will rely on the attorney's opinion.

Reliant Inc. files a suit against Saul, 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, Reliant must show that Saul