Question 1

The general duty of professionals requires them to be guarantors of the accuracy of their work.

Accepted Answer

A) True 
 B)False

Question 2

The Securities Exchange Act of 1934 does not impose any criminal liability for violation of any of its provisions.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is correct concerning the professional-client privilege and working papers produced by an auditor while auditing the records of a client?

Accepted Answer

A) The client owns working papers. 
B) Working papers may be transferred to another auditor without permission of the client. 
C) The client does not have a right of access to the working papers. 
D) The professional-client privilege usually belongs to the client.

Question 4

Under the Sarbanes-Oxley Act of 2002,public accounting firms that audit financial statements of public companies are required to register with the Public Company Accounting Oversight Board and submit to its rules.

Accepted Answer

A) True 
 B)False

Question 5

A person who is injured in his/her business or property by reason of a professional's conduct or participation,directly or indirectly,in an enterprise's affairs through a pattern of racketeering activity may recover ________ from the professional.

Accepted Answer

A) only part of the damage for which the professional is responsible 
B) five times his/her actual damages 
C) three times his/her actual damages 
D) only his/her actual damages

Question 6

Jerry,an accountant,works for H & J Accounting,a limited liability partnership.Jerry injuries his client by failing to act as the ordinarily prudent accountant would act.Generally speaking,is Jerry liable to the client for professional misconduct?

Accepted Answer

A) No,because Jerry is shielded by the limited liability status of the partnership. 
B) No,because Jerry never provided the client with any assurances. 
C) Yes,because Jerry failed to have the client sign a contract releasing him of liability. 
D) Yes,because Jerry is not shielded by the limited liability status of the partnership.

Question 7

For proving liability of a professional under ________,the plaintiff need not prove reliance on the wrongful conduct.

Accepted Answer

A) Section 17(
A) of the Securities Act of 1933 
B) Section 10(
B) of the Securities Exchange Act of 1934 
C) Section 18 of the Securities Exchange Act of 1934 
D) Section 12(a)(2)of the Securities Act of 1933

Question 8

According to the Sarbanes-Oxley Act,how long must audit and review working papers be retained?

Accepted Answer

A) 2 years 
B) 7 years 
C) 10 years 
D) 20 years

Question 9

Which of the following requires auditors to take specific steps if they learn during the course of an audit that a client may have committed an illegal act?

Accepted Answer

A) Private Securities Litigation Reform Act of 1995 
B) Securities Exchange Act of 1934 
C) Sarbanes-Oxley Act 
D) Dodd-Frank Act

Question 10

Which of the following are not working papers?

Accepted Answer

A) Data reconciling the accountant's report with the client's records 
B) Comments about the client's internal controls 
C) Evidence of the testing of accounts 
D) Accounting records

Question 11

Due to violations of securities,tax,and other laws,a professional might be subject to an administrative proceeding that may result in:

Accepted Answer

A) an injunction. 
B) revocation or suspension of a professional license. 
C) imprisonment. 
D) a cease and desist order.

Question 12

In a state that uses the Restatement (Second)of Torts,who amongst the following may hold an accountant liable for common law negligence?

Accepted Answer

A) Only the client. 
B) Only the client and a third party that the accountant knew would rely on the accountant's work for a particular purpose. 
C) Only the client,a third party that the accountant knew would rely on the accountant's work for a particular purpose,and others who are in the same limited class as that third party. 
D) Any third party that is a foreseeable user of the accountant's work may hold him/her liable if that third party suffers a loss as a direct result of the accountant's negligence.

Question 13

One of the elements necessary to hold a CPA liable to a client for conducting an audit negligently is that the CPA:

Accepted Answer

A) acted with scienter or guilty knowledge. 
B) was a fiduciary of the client. 
C) failed to exercise reasonable care. 
D) executed a fraudulent engagement letter.

Question 14

In a state that has adopted the Ultramares rule and uses the primary benefit test,who amongst the following may hold an accountant liable for common law negligence?

Accepted Answer

A) Only the client. 
B) Only the client and a third party that the accountant knew would rely on the accountant's work for a particular purpose. 
C) Only a third party that the accountant knew would rely on the accountant's work for a particular purpose,and others who are in the same limited class as that third party. 
D) Any third party that is a foreseeable user of the accountant's work may hold him/her liable if that third party suffers a loss as a direct result of the accountant's negligence.

Question 15

The central requirement for the primary benefit test is:

Accepted Answer

A) breach of contract. 
B) fraud. 
C) privity of contract. 
D) breach of trust.

Question 16

Under the Racketeer Influenced and Corrupt Organizations Act (RICO),a pattern of fraud is proved by the commission of:

Accepted Answer

A) two predicate offenses within a 10-year period. 
B) five predicate offenses within a 20-year period. 
C) two predicate offenses within a 20-year period. 
D) five predicate offenses within a 10-year period.

Question 17

The professional's duty to exercise reasonable care is a subset of the negligence standard of tort law.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is sufficient to establish that a professional has acted with scienter for purposes of common law fraud?

Accepted Answer

A) The professional's careless consideration for the accuracy of his/her work. 
B) The professional's reckless ignorance of facts. 
C) The professional's failure to exercise due diligence. 
D) The professional's negligent misstatement of fact.

Question 19

Which of the following is means there is a direct contractual relation between the parties?

Accepted Answer

A) Privity 
B) Ripeness 
C) In pari delicto 
D) Scienter

Question 20

West & Co. ,a large CPA firm,was engaged by Sand Corp.to audit its financial statements.West issued an unqualified opinion on Sand's financial statements.Reed is a securities investor who relied upon the statements when purchasing Sand stocks.After incurring major losses on Sand stocks,Reed accused Sand of making negligent misrepresentations in the financial statements.West was not aware of the misrepresentations nor was it negligent in performing the audit.If Reed sues West for damages,based on Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934,West will:

Accepted Answer

A) lose,because Reed relied upon the financial statements. 
B) lose,because the statements contained negligent misrepresentation. 
C) prevail,because some element of scienter must be proved. 
D) prevail,because Reed was not in privity of contract with West.

Exam 46: Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals

The general duty of professionals requires them to be guarantors of the accuracy of their work.

The Securities Exchange Act of 1934 does not impose any criminal liability for violation of any of its provisions.

Which of the following is correct concerning the professional-client privilege and working papers produced by an auditor while auditing the records of a client?

Under the Sarbanes-Oxley Act of 2002,public accounting firms that audit financial statements of public companies are required to register with the Public Company Accounting Oversight Board and submit to its rules.

A person who is injured in his/her business or property by reason of a professional's conduct or participation,directly or indirectly,in an enterprise's affairs through a pattern of racketeering activity may recover ________ from the professional.

Jerry,an accountant,works for H & J Accounting,a limited liability partnership.Jerry injuries his client by failing to act as the ordinarily prudent accountant would act.Generally speaking,is Jerry liable to the client for professional misconduct?

For proving liability of a professional under ________,the plaintiff need not prove reliance on the wrongful conduct.

According to the Sarbanes-Oxley Act,how long must audit and review working papers be retained?

Which of the following requires auditors to take specific steps if they learn during the course of an audit that a client may have committed an illegal act?

Which of the following are not working papers?

Due to violations of securities,tax,and other laws,a professional might be subject to an administrative proceeding that may result in:

In a state that uses the Restatement (Second) of Torts,who amongst the following may hold an accountant liable for common law negligence?

One of the elements necessary to hold a CPA liable to a client for conducting an audit negligently is that the CPA:

In a state that has adopted the Ultramares rule and uses the primary benefit test,who amongst the following may hold an accountant liable for common law negligence?

The central requirement for the primary benefit test is:

Under the Racketeer Influenced and Corrupt Organizations Act (RICO) ,a pattern of fraud is proved by the commission of:

The professional's duty to exercise reasonable care is a subset of the negligence standard of tort law.

Which of the following is sufficient to establish that a professional has acted with scienter for purposes of common law fraud?

Which of the following is means there is a direct contractual relation between the parties?