Question 1

Gold,a CPA,rendered an unqualified opinion on the 1987 financial statement of Eastern Power Co.Egan purchased Eastern bonds in a public offering subject to the Securities Act of 1933.The registration statement filed with the SEC included the financial statements.Gold is being sued by Egan under Section 11 of the Securities Act of 1933 for the misstatements contained in the financial statements.To prevail,Egan must prove:

Accepted Answer

A) neither scienter nor reliance. 
B) reliance but not scienter. 
C) scienter but not reliance. 
D) both scienter and reliance.

Question 2

If a state recognizes a privilege,like accountant-client privilege,then the federal courts in that jurisdiction will also allow that privilege.

Accepted Answer

A) True 
 B)False

Question 3

Under Section 11 of the Securities Act of 1933,an auditor may escape liability by proving he/she had no reason to believe and did not believe that there were any misstatements or omissions of material fact in the financial statements he/she audited.

Accepted Answer

A) True 
 B)False

Question 4

Courts and legislatures in dealing with professional negligence usually defer to the members of a profession to determine what the professional standard should be.

Accepted Answer

A) True 
 B)False

Question 5

A knowing or willful violation of the Sarbanes-Oxley's document retention rule is subject to ________ years' imprisonment,and,if corruptly done,________ years.

Accepted Answer

A) 5;10 
B) 10;15 
C) 15;20 
D) 10;20

Question 6

Some courts allow a professional to use the defense of ________,which stands for the idea that damages are proportioned between the parties to a negligence action in proportion to their relative fault.

Accepted Answer

A) contributory negligence 
B) assumption of risk 
C) lack of intent 
D) comparative negligence

Question 7

Which of the following statements about the New York Stock Exchange's rules in regard to analysts' conflicts of interest is false?

Accepted Answer

A) The rules prohibit a securities firm from offering favorable research to a company in order to induce the company to use the securities firm's investment banking service. 
B) The rules do not explicitly address whether an analyst's compensation may be tied to a specific investment banking services transaction. 
C) The rules increase analyst independence by prohibiting investment banking personnel from supervising analysts or approving research reports. 
D) The rules are substantially similar to the SEC's Regulation AC.

Question 8

Which of the following is authorized to conduct periodic inspections of nonprivate company auditors in order to assess whether they are complying with the requirements of the Sarbanes-Oxley Act?

Accepted Answer

A) The Public Company Accounting Oversight Board 
B) The Securities Exchange Commission 
C) The Federal Trade Commission 
D) The Internal Revenue Service

Question 9

Ritz Co.wished to acquire Smart Inc.In conjunction with its plan of acquisition,Ritz hired Felix,a CPA,to audit the financial statements of Smart.Based on the audited financial statements and Felix's unqualified opinion,Ritz acquired Smart.Within six months,it was discovered that the inventory of Smart had been overstated by $500,000.Ritz commenced an action against Felix.Ritz believes that Felix failed to exercise the knowledge,skill,and judgment commonly possessed by CPAs in the locality,but is unable to prove that Felix either intentionally deceived it or showed a reckless disregard for the truth.Ritz is also unable to prove that Felix had any knowledge that the inventory was overstated.Which of the following would provide Ritz with a proper basis for prevailing in a lawsuit against Felix?

Accepted Answer

A) Negligence and breach of contract 
B) Gross negligence and fraud 
C) Negligence and fraud 
D) Gross negligence and breach of contract

Question 10

Tuff Ruff LLP,a CPA firm,is engaged to audit the financial statements of Stuvver Company.During the audit,Tuff Ruff discovers that Stuvver has been illegally dumping toxic chemicals on a 40-acre plot of land behind its main manufacturing plant.What is Tuff Ruff's public duty regarding Stuvver's illegal dumping?

Accepted Answer

The answer of Tuff Ruff LLP,a CPA firm,is engaged to...

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

If a state recognizes a privilege,like accountant-client privilege,then the federal courts in that jurisdiction will also allow that privilege.

Under Section 11 of the Securities Act of 1933,an auditor may escape liability by proving he/she had no reason to believe and did not believe that there were any misstatements or omissions of material fact in the financial statements he/she audited.

Courts and legislatures in dealing with professional negligence usually defer to the members of a profession to determine what the professional standard should be.

A knowing or willful violation of the Sarbanes-Oxley's document retention rule is subject to years' imprisonment,and,if corruptly done, years.

Some courts allow a professional to use the defense of ________,which stands for the idea that damages are proportioned between the parties to a negligence action in proportion to their relative fault.

Which of the following statements about the New York Stock Exchange's rules in regard to analysts' conflicts of interest is false?

Which of the following is authorized to conduct periodic inspections of nonprivate company auditors in order to assess whether they are complying with the requirements of the Sarbanes-Oxley Act?