Question 1

Attorneys are required to find relevant law that is applicable to a case and can be discovered through a reasonable amount of research.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) liable if Odette failed to discover a defalcation. 
B) liable if Odette failed to discover a fraud. 
C) liable if Odette failed to discover an impropriety. 
D) not liable.

Question 3

Traditionally, a professional owed a duty only to those with whom the professional had a direct contractual relationship.

Accepted Answer

A) True 
 B)False

Question 4

Reed prepares federal corporate income tax returns for Shopping Malls, 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

Root & Branch is a Registered Public Accounting Firm. Root & Branch performs auditing services for Sales & Service Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Root & Branch can also perform​

Accepted Answer

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

Question 6

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Accepted Answer

A) True 
 B)False

Question 7

In most courts, accountants are subject to liability for negligence only to their clients.

Accepted Answer

A) True 
 B)False

Question 8

Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states, working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by​

Accepted Answer

A)  ​Rollo. 
B)  ​Systems Analysis. 
C)  ​Tyra. 
D)  ​no one-the papers must be destroyed immediately after use.

Question 9

Silvia prepares federal corporate income tax returns for Trade & Pawn Stores, Inc., and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Silvia may be liable for​

Accepted Answer

A)  ​negligent or willful misconduct. 
B)  ​none of the choices. 
C)  ​only negligent misconduct. 
D)  ​only willful misconduct.

Question 10

Gift Basket Company's liabilities exceed its assets. Gift Basket hires Hill & Dale, an accounting firm, to prepare a balance sheet. Through Hill & Dale's negligent omissions, the sheet shows a net worth. Investment Bank relies on the balance sheet to make a loan to Gift Basket. When Gift Basket defaults, the bank files a suit against Hill & Dale. Under the Restatement (Third) of Torts, Hill & Dale is most likely​

Accepted Answer

A)  ​liable because Hill & Dale owed a duty of care to Gift Basket. 
B)  ​liable because Hill & Dale owed a duty to any foreseeable user. 
C)  ​liable if Hill & Dale knew that the bank would rely on the balance sheet. 
D)  ​not liable because Hill & Dale and the bank were not in privity.

Question 11

An accountant is not liable for an omission in a registration statement to a purchaser of securities if the omission had no causal connection to the purchaser's loss.

Accepted Answer

A) True 
 B)False

Question 12

Dougal, an accountant, prepares for Econo Enterprise, Inc., a financial statement that omits a material fact. The statement is included in Econo's registration statement with the Securities and Exchange Commission. Felicia, who relies the statement, and Graham, who does not, each buy Econo stock. Under Section 11 of the Securities Act of 1933, Dougal may be liable to​

Accepted Answer

A)  ​no one. 
B)  ​Felicia only. 
C)  ​Felicia and Graham. 
D)  ​Graham only.

Question 13

April is an accountant whose clients include Bistro Restaurants Inc. If April is negligent in her work for Bistro, most courts would hold her liable to Bistro 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 14

The Sarbanes-Oxley Act applies only to domestic public accounting firms that provide auditing services to "issuers."​

Accepted Answer

A) True 
 B)False

Question 15

An accountant is always liable for a misleading statement that affects the price of a security, even if the accountant acted in good faith.

Accepted Answer

A) True 
 B)False

Question 16

Taylor is an accountant whose clients include Universal Metrics Corporation. Velma is Taylor's attorney. Working papers that Taylor develops when preparing financial reports for Universal Metrics are owned by​

Accepted Answer

A)  Taylor. 
B)  ​Universal Metrics. 
C)  ​Velma. 
D)  ​no one-the papers must be destroyed immediately after use.

Question 17

To obtain damages for fraud, an innocent party does notneed to have been injured.

Accepted Answer

A) True 
 B)False

Question 18

Constructive fraud may be found when an accountant is grossly negligent in performing his or her duties.

Accepted Answer

A) True 
 B)False

Question 19

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely

Accepted Answer

A) liable if a normal audit would have revealed the misconduct. 
B) liable if Ricardo issues a specifically qualified opinion. 
C) not liable if Ricardo generally disclaims any liability. 
D) not liable if the misconduct was due to Sensei Sushi's negligence.

Question 20

Reliant Funds, 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 Funds 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 33: Liability of Accountants and Other Professionals

Attorneys are required to find relevant law that is applicable to a case and can be discovered through a reasonable amount of research.

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

Traditionally, a professional owed a duty only to those with whom the professional had a direct contractual relationship.

Reed prepares federal corporate income tax returns for Shopping Malls, 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​

Root & Branch is a Registered Public Accounting Firm. Root & Branch performs auditing services for Sales & Service Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Root & Branch can also perform​

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

In most courts, accountants are subject to liability for negligence only to their clients.

Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states, working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by​

Silvia prepares federal corporate income tax returns for Trade & Pawn Stores, Inc., and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Silvia may be liable for​

An accountant is not liable for an omission in a registration statement to a purchaser of securities if the omission had no causal connection to the purchaser's loss.

April is an accountant whose clients include Bistro Restaurants Inc. If April is negligent in her work for Bistro, most courts would hold her liable to Bistro and​

The Sarbanes-Oxley Act applies only to domestic public accounting firms that provide auditing services to "issuers."​

An accountant is always liable for a misleading statement that affects the price of a security, even if the accountant acted in good faith.

Taylor is an accountant whose clients include Universal Metrics Corporation. Velma is Taylor's attorney. Working papers that Taylor develops when preparing financial reports for Universal Metrics are owned by​

To obtain damages for fraud, an innocent party does notneed to have been injured.

Constructive fraud may be found when an accountant is grossly negligent in performing his or her duties.

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely

Reliant Funds, 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 Funds must show that Saul​

Reed prepares federal corporate income tax returns for Shopping Malls, 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

Root & Branch is a Registered Public Accounting Firm. Root & Branch performs auditing services for Sales & Service Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Root & Branch can also perform

Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states, working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by

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

April is an accountant whose clients include Bistro Restaurants Inc. If April is negligent in her work for Bistro, most courts would hold her liable to Bistro and

The Sarbanes-Oxley Act applies only to domestic public accounting firms that provide auditing services to "issuers."

Taylor is an accountant whose clients include Universal Metrics Corporation. Velma is Taylor's attorney. Working papers that Taylor develops when preparing financial reports for Universal Metrics are owned by

Reliant Funds, 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 Funds must show that Saul