Question 1

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

Accepted Answer

A) True 
 B)False

Question 2

Sims, an accountant, prepares for Taco Corporation a financial statement that omits a material fact. The financial statement is included in Taco's registration statement, which Uri reads. Uri buys Taco stock. Under Section 11 of the Securities Act of 1933, for Sims to be liable for the omission, Uri must show that he

Accepted Answer

A)   relied on the omission.
B)   suffered a loss on the stock.
C)   knew about the omission before making the purchase.
D)   is a sophisticated investor.E) None of the above
F) All of the above

Question 3

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Accepted Answer

A)   Bell to pay the amount of the fine as damages to the firm.
B)   Bell to meet the next deadline but not to pay damages.
C)   Consumer Staples to drop its suit and pay its fine.
D)   Consumer Staples to secure another professional to finish the work.E) B) and D)
F) B) and C)

Question 4

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.

Accepted Answer

A) True 
 B)False

Question 5

A professional can be held liable for constructive fraud whether or not he or she acted with fraudulent intent.

Accepted Answer

A) True 
 B)False

Question 6

Cath is an accountant with Discount Corporation. Efrem buys Discount stock and loses money on the investment. To recover from Cath under Section 10(b)  of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove

Accepted Answer

A)   only the purchase and sale of a security.
B)   fraud, reliance, materiality, and lack of knowledge about securities.
C)   fraud, reliance, materiality, and incompetence.
D)   fraud, reliance, materiality, causation, and scienter.E) B) and D)
F) A) and B)

Question 7

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Auto Company's liabilities exceed its assets. The firm hires Bass, an accountant, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Credit Bank relies on the document to make a loan to Auto. When the firm defaults, the bank files a suit against Bass. Under the Restatement (Third)  of Torts, Bass is most likely

Accepted Answer

A)   liable because the accountant owed a duty to the client.
B)   liable because the accountant owed a duty to any foreseeable user.
C)   liable if the accountant knew the bank would rely on the balance sheet.
D)   not liable because the accountant and the bank were not in privity.E) C) and D)
F) B) and C)

Question 10

An accountant is least likely to be held liable for accounting fraud if he or she

Accepted Answer

A)   uncovers suspicious financial transactions but does not inform the client.
B)   fails to discover every impropriety in a client's books.
C)   reports fictitious revenues in a client's financial statement.
D)   conceals liabilities or debts, or artificially inflates assets, for a client.E) A) and B)
F) A) and C)

Question 11

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Accepted Answer

A)   misstatement of a material fact.
B)   intent to deceive.
C)   justifiable reliance.
D)   an injury.E) None of the above
F) A) and B)

Question 12

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

Accepted Answer

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

Exam 40: Liability of Accountants and Other Professionals

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Correct Answer
verified

An accountant is least likely to be held liable for accounting fraud if he or she

Correct Answer
verified

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Correct Answer
verified

Correct Answer
verified

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

A professional can be held liable for constructive fraud whether or not he or she acted with fraudulent intent.

Correct Answer
verified

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.

Correct Answer
verified

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

Correct Answer
verified

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Correct Answer
verified

Cath is an accountant with Discount Corporation. Efrem buys Discount stock and loses money on the investment. To recover from Cath under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove

Correct Answer
verified

Exam 40: Liability of Accountants and Other Professionals

In most states, accountants are subject to liability for negligence not only to their clients but also to foreseen or known users of the accountants' reports.

Correct AnswerverifiedShow Answer

An accountant is least likely to be held liable for accounting fraud if he or she

Correct AnswerverifiedShow Answer

Bell, an accountant, enters into a contract to provide services to Consumer Staples Inc. Bell fails to meet a regulatory deadline for the work. Required to pay a fine, the company files a suit against Bell. Most likely, the court will order

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because working papers are the property of an accountant, a client for whom the documents were used and developed has no right of access to them.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A professional can be held liable for constructive fraud whether or not he or she acted with fraudulent intent.

Correct AnswerverifiedShow Answer

The importance of abiding by the standards of a profession is highlighted whenever a professional fails to adhere to those standards.

Correct AnswerverifiedShow Answer

Gen & Hetty is a Registered Public Accounting Firm. The firm performs auditing services for Healthcare Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Gen & Hetty can also perform

Correct AnswerverifiedShow Answer

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Correct AnswerverifiedShow Answer

Cath is an accountant with Discount Corporation. Efrem buys Discount stock and loses money on the investment. To recover from Cath under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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