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Exam 30: Liability of Accountants and Other Professionals

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Question 1

True/False

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Generally,an accountant must exercise the degree of care that an ordinarily prudent accountant would exercise.

A) True
B) False

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Question 2

Multiple Choice

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Hadley,an accountant,accumulates working papers while performing an audit for Ilene.After the audit,these documents belong to

A) Hadley,with Ilene having a right of access to the papers.
B) Ilene,with Hadley having a right of access to the papers.
C) neither Hadley nor Ilene-the papers must be disposed of.
D) the Public Company Accounting Oversight Board.

E) A) and B)
F) B) and D)

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Question 3

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An accountant's liability under the Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 re-quires privity of contract.

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

Filtration Products,Inc.,files a suit against Emmett,its former accountant,al-leging constructive fraud.Emmett may be held liable

Malpractice is professional negligence.

Rex,an accountant,enters into a contract to provide services to Sofi.Rex does not finish the work within the contract's deadline.Sofi pays a penalty as a result of the missed deadline and hires Trey to complete the job.Rex is most likely liable for

Gert,an accountant,contracts to conduct an audit for Hailey.In performing the audit,Gert fails to detect certain misconduct.Gert is most likely

Bryce's accountant is Caleb and his attorney is Delilah.All states protect,as privileged information,Bryce's communications with

An attorney may be liable to a third party who relies on the attorney's legal opinion to the third party's detriment

Estes,an accountant,contracts to perform services for Frasier.In performing those services,Estes uncovers a suspicious financial transaction.Estes is most likely not liable if he

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

A failure to follow generally accepted accounting principles and gener-ally accepted auditing standards is proof of a lack of due diligence.

Jerzy is an accountant whose clients include Kopper Kettle Restaurants,Inc.For a violation of securities laws,Jerzy may be subject to

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

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

An opinion that disclaims any liability for false or misleading financial statements is too general.

Under the Sarbanes-Oxley Act,accountants must retain working papers relating to an audit or review for a certain period of time.

Accountants may be subject to criminal penalties for violations of federal securities laws.

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