Question 1

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

Accepted Answer

A) negligent or willful misconduct. 
B) no misconduct. 
C) only negligent misconduct. 
D) only willful misconduct.

Question 2

Longhaul Freight,Inc. ,files a suit against Midge,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,Longhaul must show that Midge

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

An accountant who performs an audit is liable for failing to detect misconduct even if a normal audit would not have revealed it.

Accepted Answer

A) True 
 B)False

Question 5

Quin,an accountant,prepares for Reddy,Inc. ,a financial state?ment 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 6

Craig is an accountant whose clients include Digby National Corporation.Elbert is Craig's attorney.Working papers that Craig develops when preparing financial reports for Digby are owned by

Accepted Answer

A) Craig. 
B) Digby. 
C) Elbert. 
D) no one-the papers must be destroyed immediately after use.

Question 7

Flynn,an accountant,helps Grange Supply Company prepare and file a false federal corporate income tax return.Under the In?ternal 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 8

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 9

Professionals are required to deliver competent services.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Pace is an attorney,whose clients include Quikfeet Running Shoes Company.Unless Quikfeet has violated securities law,the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Accepted Answer

A) only to a third party who is a foreseeable user of the information. 
B) only under a court order (with or without Quikfeet's consent). 
C) only with Quikfeet's consent. 
D) under any circumstances.

Question 12

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 13

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 14

Pat,an accountant,includes a false statement in a report for Quantity,Inc. ,that is filed with the Securities and Exchange Commis?sion.Quantity publishes a misleading ad about its future prospects.Rita sees the ad and calls Stan,who buys stock in Quantity.Under Section 18 of the Securities Ex?change Act of 1934,liability may attach to

Accepted Answer

A) Pat's report. 
B) Quantity's ad. 
C) Rita's call. 
D) Stan's purchase.

Question 15

Under the Sarbanes-Oxley Act of 2002,accountants must dispose of working papers relating to an audit or review.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

Bowie,a certified public accountant,prepares and certifies Candy Products Corporation's financial statements.These statements are in?cluded 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 priv?ity 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 certifies Candy...

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 48: B: Professional Liaility and Accountability

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

Longhaul Freight,Inc. ,files a suit against Midge,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,Longhaul must show that Midge

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

An accountant who performs an audit is liable for failing to detect misconduct even if a normal audit would not have revealed it.

Craig is an accountant whose clients include Digby National Corporation.Elbert is Craig's attorney.Working papers that Craig develops when preparing financial reports for Digby are owned by

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

Professionals are required to deliver competent services.

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

Pace is an attorney,whose clients include Quikfeet Running Shoes Company.Unless Quikfeet has violated securities law,the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

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

Under the Sarbanes-Oxley Act of 2002,accountants must dispose of working papers relating to an audit or review.

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

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

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

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