Question 1

Flynn, an accountant, helps Grange Supply Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is

Accepted Answer

A)  a felony punishable by a fine and imprisonment. 
B)  a felony punishable only by a fine. 
C)  a misdemeanor punishable only by a fine. 
D)  a civil violation subject to a liability suit but not a crime.

Question 2

Marquis Company's liabilities exceed its assets, but the firm's employees falsify its books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to prepare a balance sheet, which is certified to show a net worth. Pure Credit Corporation relies on the balance sheet to make a loan to Marquis. When the firm defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the accounting firm is most likely

Accepted Answer

A)  liable because Nan & Ollie owed a duty of care to all third parties. 
B)  liable because Nan & Ollie owed a duty of care to Marquis. 
C)  liable because Nan & Ollie owed a duty to any foreseeable user. 
D)  not liable because Nan & Ollie and Pure Credit were not in privity.

Question 3

Under rules of professional conduct, an attorney should not engage in conduct involving "misrepresentation."

Accepted Answer

A) True 
 B)False

Question 4

A professional's gross negligence in performing a duty constitutes actual fraud.

Accepted Answer

A) True 
 B)False

Question 5

Bowie, a certified public accountant, prepares and certifies Candy Products Corporation's financial statements. These statements are included in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities. Dona buys a security covered by the registration statement. Based on this transaction, Dona files a suit against Bowie under Section 11 and Section 10(b) of the Securities Exchange Act of 1934. To succeed in the suit, what must Dona prove Bowie responds that Dona was not in privity with him and that even if she had been in privity, she cannot prove his lack of due diligence. Can Bowie prevail on these grounds Why or why not

Accepted Answer

The answer of Bowie, a certified public accountant, prepares and...

Question 6

Faith and Gordon are accountants who work together. Faith and Gordon can limit their potential liability for each other's misconduct by organizing their business as

Accepted Answer

A)  a foreign corporation. 
B)  a non-professional corporation. 
C)  an unincorporated corporation. 
D)  a professional corporation.

Question 7

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

Accepted Answer

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

Question 8

The Sarbanes-Oxley Act of 2002 applies only to domestic public accounting firms that provide auditing services to "issuers."

Accepted Answer

A) True 
 B)False

Question 9

Dwayne can be described as "a reasonably competent general practitioner of ordinary skill, experience, and capacity." This is the normal standard for judging the performance of

Accepted Answer

A)  a client. 
B)  an accountant. 
C)  an attorney. 
D)  a tax preparer.

Question 10

Rollo is an attorney whose clients include Superior Credit Company. If Rollo is negligent in his work for Superior, under the Restatement (Second) of Torts, Rollo may be liable to Superior and

Accepted Answer

A)  any third party. 
B)  no third party. 
C)  third parties who are foreseen users of the work. 
D)  third parties who are reasonably foreseeable users of the work.

Question 11

Grover Nut Company files a suit against Hud, its former accountant, alleging actual fraud. Grover must prove

Accepted Answer

A)  intent to deceive. 
B)  misrepresentation of a non-material fact. 
C)  the lack of an injury. 
D)  unjustifiable reliance.

Question 12

An innocent professional is never liable for a co-professional's misconduct.

Accepted Answer

A) True 
 B)False

Question 13

Lucille, an accountant, is subject to the accounting conventions, rules, and procedures that constitute generally accepted accounting principles (GAAP). GAAP are determined by

Accepted Answer

A)  the International Accounting Standards Board. 
B)  the American Bar Association. 
C)  the American Institute of Certified Public Accountants. 
D)  the Financial Accounting Standards Board.

Question 14

Accountants and other professionals do not face liability under the common law for any breach of contract.

Accepted Answer

A) True 
 B)False

Question 15

Sian, an accountant, prepares a tax return for a client, Toy Sales Company. Vita, who is not an accountant, prepares a tax return for Wu's business, Xtra Delivery Service. Is an accountant who prepares a tax return for a client liable for any false statements in the return Is a person who is not an accountant and who prepares a tax return for someone else liable for any false statements in the return

Accepted Answer

The answer of Sian, an accountant, prepares a tax return...

Question 16

An accountant may be liable for a misstatement or omission of material fact in a registration statement.

Accepted Answer

A) True 
 B)False

Question 17

Penelope is an attorney. Penelope's conduct is governed by rules of professional conduct established by the state in which she is licensed, and the Model Rules of Professional Conduct drafted by

Accepted Answer

A)  federal courts. 
B)  the American Bar Association. 
C)  the American Institute of Certified Public Accountants. 
D)  the International Accounting Standards Board.

Question 18

Quin, an accountant, prepares for Reddy, Inc., a financial statement that omits a material fact. The statement is included in Reddy's registration statement with the Securities and Exchange Commission. Timor, who reads the statement, and Ubi, who does not, each buy Reddy stock. Velma reads the statement but does not buy the stock. Under Section 11 of the Securities Act of 1933, Quin may be liable to

Accepted Answer

A)  no one. 
B)  Timor and Ubi. 
C)  Timor, Ubi, and Velma. 
D)  Ubi only.

Question 19

In no states are communications between an accountant and his or her client privileged.

Accepted Answer

A) True 
 B)False

Question 20

An accountant normally will be held liable to the client for a mistake in judgment.

Accepted Answer

A) True 
 B)False

Exam 48: Professional Liaility and Accountability

Flynn, an accountant, helps Grange Supply Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is

Under rules of professional conduct, an attorney should not engage in conduct involving "misrepresentation."

A professional's gross negligence in performing a duty constitutes actual fraud.

Faith and Gordon are accountants who work together. Faith and Gordon can limit their potential liability for each other's misconduct by organizing their business as

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

The Sarbanes-Oxley Act of 2002 applies only to domestic public accounting firms that provide auditing services to "issuers."

Dwayne can be described as "a reasonably competent general practitioner of ordinary skill, experience, and capacity." This is the normal standard for judging the performance of

Rollo is an attorney whose clients include Superior Credit Company. If Rollo is negligent in his work for Superior, under the Restatement (Second) of Torts, Rollo may be liable to Superior and

Grover Nut Company files a suit against Hud, its former accountant, alleging actual fraud. Grover must prove

An innocent professional is never liable for a co-professional's misconduct.

Lucille, an accountant, is subject to the accounting conventions, rules, and procedures that constitute generally accepted accounting principles (GAAP) . GAAP are determined by

Accountants and other professionals do not face liability under the common law for any breach of contract.

An accountant may be liable for a misstatement or omission of material fact in a registration statement.

Penelope is an attorney. Penelope's conduct is governed by rules of professional conduct established by the state in which she is licensed, and the Model Rules of Professional Conduct drafted by

In no states are communications between an accountant and his or her client privileged.

An accountant normally will be held liable to the client for a mistake in judgment.