Accountants may not be sued for malpractice because that action is only available in the medical community.
FALSE
FALSE
Actions brought against attorneys, lawyers, real estate brokers, doctors, architects, and other professionals are referred to as malpractice actions.
An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured though a justifiable reliance upon the fraudulent information.
TRUE
TRUE
An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance on the fraudulent information.
Over the last few years, plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.
TRUE
TRUE
Over the last few years, plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law.
FALSE
FALSE
Third-party liability, as decided by the states, falls into three general groupings: (1) privity or near-privity (the Ultramares rule), (2) foreseen users and classes of users (the Restatement rule), and (3) reasonably foreseeable users.
The reasonably foreseeable users test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and did, in fact, use and rely upon that work product for a proper business purpose.
TRUE
TRUE
Very few states have adopted the general negligence standard of accountant third-party liability called the reasonably foreseeable users test. This test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and who did in fact use and rely on that work product for a proper business purpose.
After an audit, the accountant is the legal owner of working papers.
TRUE
TRUE
After an audit, the accountant is the legal owner of working papers.
When a federal law is at issue, state protection of an accountant-client privilege does not apply.
TRUE
TRUE
A number of states have adopted statutes granting some form of accountant-client privilege, but when a federal law is at issue, state protection does not apply.
A plaintiff may only recover under Section 11 of the Securities Act of 1933 if the plaintiff can establish that the plaintiff purchased securities in an initial public offering.
FALSE
FALSE
Under Section 11 of the Securities Act of 1933, accountants are civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires. Originally liable only to those who purchased securities in an initial public offering (IPO), accountants are now liable to subsequent purchasers as well. The purchaser may recover damages without knowing about or relying on the flawed information or even being a party to the contractual agreement.
In the Case Opener "WorldCom," the court ruled that the chairman of WorldCom's board of directors could have no personal liability for misrepresentations of the company's condition in filings with the Securities and Exchange Commission.
FALSE
FALSE
The chairman of WorldCom's board of directors faced charges of liability under Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Securities Exchange Act. The judge denied the chairman's motion on all counts, claiming that the chairman did not meet his burden of proof for any of the affirmative defenses.
Regarding liability for negligence to third parties, under the Restatement test, an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.
TRUE
TRUE
Under the Restatement test, an accountant is liable to known third-party users of the accountant's work product. The test extends liability to those people, or the class of people, the accountant foresaw or should have foreseen as being the recipients of and relying on his or her work.
An action against an accountant for failing to properly perform the job for which the accountant was hired is referred to as a _________ action.
A. Malfeasance
B. Malpractice
C. Impropriety
D. Misguidance
E. Misjudgment
A. Malfeasance
B. Malpractice
C. Impropriety
D. Misguidance
E. Misjudgment
Actions brought against attorneys, lawyers, real estate brokers, doctors, architects, and other professionals are referred to as malpractice actions.
After a significant amount of responsibility for the bankruptcy of ____________ Corporation was placed on the firms that provided accounting services for the corporation, the role of accountants became a question of significant public interest.
A. Enron
B. Acron
C. Selinas
D. Prolific
E. Deltoid
A. Enron
B. Acron
C. Selinas
D. Prolific
E. Deltoid
After a significant amount of responsibility for the bankruptcy of the Enron Corporation was placed on the firms that provided its accounting services, accountants' role and accountability became a matter of significant public interest.
Which of the following is not one of the three primary types of liability assessed against accountants under common law?
A. Negligence
B. Breach of contract
C. Fraud
D. Breach of contract and fraud
E. Accounting misalignment
A. Negligence
B. Breach of contract
C. Fraud
D. Breach of contract and fraud
E. Accounting misalignment
Three primary types of liability are assessed to accountants under the common law: negligence, breach of contract, and fraud.
At a minimum, the duty of care of the accountant entails compliance with which of the following?
A. Generally acknowledged accounting principles only.
B. Generally acknowledged auditing standards only.
C. Generally accepted accounting principles only.
D. Generally accepted auditing standards and generally acknowledged accounting principles.
E. Generally accepted accounting principles and generally accepted auditing standards.
A. Generally acknowledged accounting principles only.
B. Generally acknowledged auditing standards only.
C. Generally accepted accounting principles only.
D. Generally accepted auditing standards and generally acknowledged accounting principles.
E. Generally accepted accounting principles and generally accepted auditing standards.
At minimum, the duty of care of the accountant entails compliance with the generally accepted accounting principles (GAAP), established by the Financial Accounting Standards Board (FASB) and the generally accepted auditing standards (GAAS), established by the American Institute of Certified Public Accountants (AICPA).
Which of the following established GAAP?
A. The American Institute of Certified Public Accountants
B. The American Institute of Auditors
C. The Financial Accounting Standards Board
D. The American Accounting and Auditing Standards Board
E. The Federal Accounting Standards Board
A. The American Institute of Certified Public Accountants
B. The American Institute of Auditors
C. The Financial Accounting Standards Board
D. The American Accounting and Auditing Standards Board
E. The Federal Accounting Standards Board
The generally accepted accounting principles (GAAP) were established by the Financial Accounting Standards Board (FASB).
GAAS was established by which of the following?
A. The American Institute of Certified Public Accountants
B. The American Institute of Auditors
C. The Financial Accounting Standards Board
D. The American Accounting and Auditing Standards Board
E. The Federal Accounting Standards Board
A. The American Institute of Certified Public Accountants
B. The American Institute of Auditors
C. The Financial Accounting Standards Board
D. The American Accounting and Auditing Standards Board
E. The Federal Accounting Standards Board
The generally accepted auditing standards (GAAS) were established by the American Institute of Certified Public Accountants (AICPA).
Which of the following is false regarding compliance with GAAP and GAAS?
A. Failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty.
B. Compliance with GAAP and GAAS does not automatically mean that the duty of care has been met.
C. In some circumstances, a reasonable, competent accountant would do more than that the GAAP or GAAS requires.
D. A judicial opinion may impose additional legal requirements on accountants beyond GAAP and GAAS.
E. State statutes may not impose additional legal requirements on accountants beyond GAAP and GAAS.
A. Failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty.
B. Compliance with GAAP and GAAS does not automatically mean that the duty of care has been met.
C. In some circumstances, a reasonable, competent accountant would do more than that the GAAP or GAAS requires.
D. A judicial opinion may impose additional legal requirements on accountants beyond GAAP and GAAS.
E. State statutes may not impose additional legal requirements on accountants beyond GAAP and GAAS.
While failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty, compliance does not automatically mean the duty of care has been met. In some circumstances, a reasonable, competent accountant would do more than GAAP or GAAS requires. Also, sometimes a state statute or judicial opinion may impose additional legal requirements on accountants beyond GAAP and GAAS.
Generally, unless engaged to detect __________, an accountant is not a fraud detector unless the fraud is uncovered in the course of exercising reasonable care and skill.
A. Negligence
B. Misfeasance
C. Malfeasance
D. Fraud
E. Malpractice
A. Negligence
B. Misfeasance
C. Malfeasance
D. Fraud
E. Malpractice
Generally, unless engaged to detect fraud, an accountant is not a fraud detector unless the fraud is uncovered in the course of exercising reasonable care and skill.
When an audit is complete, an accountant usually issues a[n] _______________ letter stating his or her assessment of the company that was audited.
A. Opinion
B. Auditing
C. Accounting
D. Disclaimer
E. Responsive
A. Opinion
B. Auditing
C. Accounting
D. Disclaimer
E. Responsive
After completing an audit, accountants issue an opinion letter stating their assessment of the audited firm.
A financial statement is considered ____________ if no, or insubstantial, accounting procedures were used in the compilation of the document.
A. Audited
B. Unaudited
C. Unqualified
D. Qualified
E. Generally accepted
A. Audited
B. Unaudited
C. Unqualified
D. Qualified
E. Generally accepted
A financial statement is considered unaudited if no, or insubstantial, accounting procedures were used in the compilation of the document. Accountants are not liable for the contents of an unaudited financial statement.
The contract entered into with a client when an accountant is hired to perform a task is referred to as a[n] ______________.
A. Accounting contract
B. Accounting and auditing agreement
C. Engagement letter
D. Procurement letter
E. Performance letter
A. Accounting contract
B. Accounting and auditing agreement
C. Engagement letter
D. Procurement letter
E. Performance letter
When hired to perform a task, the accountant enters into a contract called an engagement letter with the client that makes certain explicit and implicit promises.
In the instance of substantial performance, an accountant is entitled to which of the following?
A. The full amount of the contractually agreed-on fee minus the amount of damages caused by the accountant.
B. The contractually agreed-on fee without any deduction.
C. A reasonable hourly rate.
D. No more than one thousand dollars.
E. Nothing.
A. The full amount of the contractually agreed-on fee minus the amount of damages caused by the accountant.
B. The contractually agreed-on fee without any deduction.
C. A reasonable hourly rate.
D. No more than one thousand dollars.
E. Nothing.
If the contract is substantially performed and the breach is therefore immaterial, the accountant may be entitled to the full amount of the contractually agreed-on fee minus the amount of damages caused by the breach.
Which of the following is fraud without fraudulent intent?
A. Actual fraud
B. Presumed fraud
C. Immaterial fraud
D. Constructive fraud
E. Reliance fraud
A. Actual fraud
B. Presumed fraud
C. Immaterial fraud
D. Constructive fraud
E. Reliance fraud
Constructive fraud is fraud without fraudulent intent—a plaintiff must prove that the accountant was grossly negligent in performing his or her duties.
When accountants are found liable for fraud, what type of damages may be assessed in addition to compensatory damages?
A. Punishable
B. Punitive
C. Material
D. Nominal
E. None of the above
A. Punishable
B. Punitive
C. Material
D. Nominal
E. None of the above
Accountants found liable for fraud can be assessed compensatory, as well as punitive, damages.
Which of the following involves accountant liability to third parties based upon privity or near privity?
A. The Ultramares Rule
B. The Class test
C. The Reliance Rule
D. The Restatement test
E. The Carroll Rule
A. The Ultramares Rule
B. The Class test
C. The Reliance Rule
D. The Restatement test
E. The Carroll Rule
Third-party liability, as decided by the states, falls into three general groupings, one of which is the privity or near-privity rule known as the Ultramares rule.
Under the _____, an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.
A. Ultramares rule
B. Class test
C. Reliance rule
D. Restatement test
E. Carroll rule
A. Ultramares rule
B. Class test
C. Reliance rule
D. Restatement test
E. Carroll rule
Under the Restatement test, an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.
In Ultramares v. Touche, Justice Cardozo took a ________ view of which third parties are permissible plaintiffs in actions against accountants.
A. Broad
B. Middle of road
C. Narrow
D. Permissive
E. Liberal
A. Broad
B. Middle of road
C. Narrow
D. Permissive
E. Liberal
In Ultramares v. Touche, Justice Benjamin Cardozo, writing for the highest state court in New York, took a narrow view of which third parties were permissible plaintiffs.
Which of the following is true regarding states adhering to the privity or near privity rule for third party liability of accountants?
A. All the states utilize it.
B. All states except one utilize it.
C. Three-quarters of the states utilize it.
D. One-half of the states utilize it.
E. Only a few states utilize it.
A. All the states utilize it.
B. All states except one utilize it.
C. Three-quarters of the states utilize it.
D. One-half of the states utilize it.
E. Only a few states utilize it.
Only a few states utilize the near-privity, or primary-benefit, test because it is viewed as too restrictive.
In reference to the case of Credit Alliance Corp. v. Arthur Anderson & Co., what did the court rule regarding the effort to hold the defendant liable on a third-party reliance theory?
A. The plaintiff was allowed to recover because the Ultramares Rule was applied.
B. The plaintiff was not allowed to recover because the Carroll Rule was applied.
C. The plaintiff was allowed to recover because it was a foreseen user.
D. The plaintiff was allowed to recover because it was in a foreseen class of users.
E. The plaintiff was not allowed to recover because the court did not find the necessary link between the plaintiff and the accounting firm.
A. The plaintiff was allowed to recover because the Ultramares Rule was applied.
B. The plaintiff was not allowed to recover because the Carroll Rule was applied.
C. The plaintiff was allowed to recover because it was a foreseen user.
D. The plaintiff was allowed to recover because it was in a foreseen class of users.
E. The plaintiff was not allowed to recover because the court did not find the necessary link between the plaintiff and the accounting firm.
According to the court, "There is simply no allegation of any word or action on the part of Andersen directed to Credit Alliance, or anything contained in Andersen's retainer agreement with Smith which provided the necessary link between them. We therefore dismiss the charges against Arthur Andersen."
Which of the following is true regarding the number of states that have adopted the Restatement Test of accountant liability for negligence to third-parties?
A. None because there is no Restatement test
B. All the states
C. About half the states
D. One-fourth of the states
E. Only a few states
A. None because there is no Restatement test
B. All the states
C. About half the states
D. One-fourth of the states
E. Only a few states
About half the states have adopted the Restatement test.
Which of the following is true regarding the liability of accountants under the law of Canada?
A. In Quebec, a plaintiff who can prove fault, damage, and a causal link between the two has sufficient grounds for a court to hold the accountant liable.
B. The Ontario Securities Act gives purchasers of securities in the primary market a right of action for damages against auditors for misrepresentations in their reports, opinions, or statements included in or referred to in the prospectus with the auditors' filed consent.
C. The Ontario Securities Act was amended to expand auditors' statutory liability to include misrepresentations in secondary-market disclosures made with the auditors' written consent.
D. All the above
E. In Quebec, a plaintiff who can prove fault, damage, and a causal link between the two has sufficient grounds for a court to hold the accountant liable. The Ontario Securities Act gives purchasers of securities in the primary market a right of action for damages against auditors for misrepresentations in their reports, opinions, or statements included in or referred to in the prospectus with the auditors' filed consent. Liability in regard to secondary-market disclosures, however, is not allowed.
A. In Quebec, a plaintiff who can prove fault, damage, and a causal link between the two has sufficient grounds for a court to hold the accountant liable.
B. The Ontario Securities Act gives purchasers of securities in the primary market a right of action for damages against auditors for misrepresentations in their reports, opinions, or statements included in or referred to in the prospectus with the auditors' filed consent.
C. The Ontario Securities Act was amended to expand auditors' statutory liability to include misrepresentations in secondary-market disclosures made with the auditors' written consent.
D. All the above
E. In Quebec, a plaintiff who can prove fault, damage, and a causal link between the two has sufficient grounds for a court to hold the accountant liable. The Ontario Securities Act gives purchasers of securities in the primary market a right of action for damages against auditors for misrepresentations in their reports, opinions, or statements included in or referred to in the prospectus with the auditors' filed consent. Liability in regard to secondary-market disclosures, however, is not allowed.
In Quebec, a plaintiff who can prove fault, damage, and a causal link between the two has sufficient grounds for a court to hold the accountant liable. The Ontario Securities Act gives purchasers of securities in the primary market a right of action for damages against auditors for misrepresentations in their reports, opinions, or statements included in or referred to in the prospectus with the auditors' filed consent. The Ontario Securities Act was amended to expand auditors' statutory liability to include misrepresentations in secondary-market disclosures made with the auditors' written consent.
What is the rational behind the Restatement Test of accountant liability to third-parties?
A. There is no such test.
B. It is only fair to hold accountants liable if they are in privity with a plaintiff.
C. Much of what accountants do is prepare work for parties that are not their clients and therefore, it makes sense for accountants to owe a duty to intended receivers.
D. Potential investors should have a route of recovery even if they could not be foreseen by accountants.
E. The general public should have a route of recovery even if they could not be foreseen by the accountant.
A. There is no such test.
B. It is only fair to hold accountants liable if they are in privity with a plaintiff.
C. Much of what accountants do is prepare work for parties that are not their clients and therefore, it makes sense for accountants to owe a duty to intended receivers.
D. Potential investors should have a route of recovery even if they could not be foreseen by accountants.
E. The general public should have a route of recovery even if they could not be foreseen by the accountant.
Much of what accountants do is prepare work for parties who are not their clients; therefore, it makes sense for them to owe a duty to these intended receivers. The test extends liability to those people, or the class of people, the accountant foresaw or should have foreseen as being the recipients of and relying on his or her work.
Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?
A. The Privity Rule
B. The Near Privity Rule
C. The Restatement Test
D. The Ultramares Rule
E. The Reasonably Foreseeable Users Rule
A. The Privity Rule
B. The Near Privity Rule
C. The Restatement Test
D. The Ultramares Rule
E. The Reasonably Foreseeable Users Rule
The Restatement test is a middle-ground test between the very restrictive, pro-accountant primary-benefit test represented by Ultramares and the liability-expanding reasonably foreseeable users test.
Which of the following is true regarding states that have adopted the Reasonably Foreseeable Users Test for accountant liability to third-parties?
A. All states have adopted it.
B. Three-quarters of the states have adopted it.
C. Half the states have adopted it.
D. Very few states have adopted it.
E. None of the states have adopted it.
A. All states have adopted it.
B. Three-quarters of the states have adopted it.
C. Half the states have adopted it.
D. Very few states have adopted it.
E. None of the states have adopted it.
Very few states have adopted the general negligence standard of accountant third-party liability called the reasonably foreseeable users test.
Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that, in fact, did use and rely upon that work product for a proper business purpose?
A. The Reasonably Foreseeable Users Test
B. The Restatement Test
C. The Privity Test
D. The Near Privity Test
E. None of the above
A. The Reasonably Foreseeable Users Test
B. The Restatement Test
C. The Privity Test
D. The Near Privity Test
E. None of the above
The reasonably foreseeable users test holds an accountant liable to any third party who was or should have been foreseen as a possible user of the accountant's work product and who did in fact use and rely on that work product for a proper business purpose.
Under which of the following do courts use reasoning similar to that used for the Reasonably Foreseeable Users Test regarding accountant liability to third-parties?
A. Strict product liability
B. Negligence
C. Fraud
D. Breach of contract
E. None of the above
A. Strict product liability
B. Negligence
C. Fraud
D. Breach of contract
E. None of the above
The general negligence standard of accountant third-party liability is called the reasonably foreseeable users test.
As set forth in the case of Bily v. Arthur Young & Co., in the text, which of the following is true regarding auditor liability to third parties under the Restatement Rule?
A. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties.
B. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose does undertake a duty to any foreseeable third party users.
C. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose undertakes a duty only to third parties who are financial institutions.
D. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes a duty only to directors of the company who provide loans to the company.
E. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties except for financial institutions and also directors who provide loans to a company.
A. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties.
B. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose does undertake a duty to any foreseeable third party users.
C. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose undertakes a duty only to third parties who are financial institutions.
D. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes a duty only to directors of the company who provide loans to the company.
E. An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties except for financial institutions and also directors who provide loans to a company.
According to the court, in Bily v. Arthur Young & Co., under the Restatement rule, an auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties.
Which of the following are various documents used and developed during an audit and included notes, calculations, and memorandums?
A. Calculation documents.
B. Working papers.
C. Auditing copies.
D. Accounting memoranda.
E. Client documentation.
A. Calculation documents.
B. Working papers.
C. Auditing copies.
D. Accounting memoranda.
E. Client documentation.
Working papers are the various documents used and developed during an audit, including notes, calculations, copies, memorandums, and other papers constituting the accountant's work product.
Which of the following is true regarding the use of working papers in negligence cases involving the accountant's work?
A. Working papers can be used as evidence in negligence cases.
B. Working papers cannot be used as evidence in negligence cases.
C. Working papers can be used as evidence in negligence cases only if a bank is the plaintiff.
D. Working papers can be used as evidence in negligence cases only if a non-corporate plaintiff is involved.
E. Working papers may be used as evidence in negligence cases only if the accountant failed to provide the client with copies of them.
A. Working papers can be used as evidence in negligence cases.
B. Working papers cannot be used as evidence in negligence cases.
C. Working papers can be used as evidence in negligence cases only if a bank is the plaintiff.
D. Working papers can be used as evidence in negligence cases only if a non-corporate plaintiff is involved.
E. Working papers may be used as evidence in negligence cases only if the accountant failed to provide the client with copies of them.
Accountants are advised to maintain all working papers because they can be used as evidence in negligence cases (to show competency of work product).
Which of the following does the Sarbanes-Oxley Act of 2002 require regarding working papers?
A. Accountants must maintain working papers for ten years starting with the end of the fiscal period in which the audit was conducted.
B. Accountants must maintain working papers for seven years starting on the last day of the audit.
C. Accountants must maintain working papers for five years starting with the end of the fiscal period in which the audit was conducted.
D. Accountants must maintain working papers for one year starting on the last day of the audit.
E. The act does not require that accountants maintain working papers.
A. Accountants must maintain working papers for ten years starting with the end of the fiscal period in which the audit was conducted.
B. Accountants must maintain working papers for seven years starting on the last day of the audit.
C. Accountants must maintain working papers for five years starting with the end of the fiscal period in which the audit was conducted.
D. Accountants must maintain working papers for one year starting on the last day of the audit.
E. The act does not require that accountants maintain working papers.
The Sarbanes-Oxley Act of 2002 requires keeping working papers for five years starting with the end of the fiscal period in which the audit was conducted.
Which of the following are penalties under the Sarbanes-Oxley Act for the willful violation of the section requiring the retention of working papers?
A. There are no penalties because the Sarbanes-Oxley Act does not require the retention of working papers.
B. Accountants may be fined but not imprisoned.
C. Accountants may be fined or imprisoned for up to ten years, but not both.
D. Accountants may be fined, imprisoned for up to ten years, or both.
E. Accountants may be fined and imprisoned up to ten years.
A. There are no penalties because the Sarbanes-Oxley Act does not require the retention of working papers.
B. Accountants may be fined but not imprisoned.
C. Accountants may be fined or imprisoned for up to ten years, but not both.
D. Accountants may be fined, imprisoned for up to ten years, or both.
E. Accountants may be fined and imprisoned up to ten years.
The Sarbanes-Oxley Act of 2002 requires keeping working papers for five years starting with the end of the fiscal period in which the audit was conducted. Willful violation results in a fine, imprisonment up to 10 years, or both.
Under which of the following are accountants civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires?
A. Section 11 of the Securities Act of 1933
B. Section 10 of the Securities Act of 1934
C. Section 12 of the Securities Act of 1934
D. Section 13 of the Securities Act of 1935
E. Section 12 of the Securities Act of 1933
A. Section 11 of the Securities Act of 1933
B. Section 10 of the Securities Act of 1934
C. Section 12 of the Securities Act of 1934
D. Section 13 of the Securities Act of 1935
E. Section 12 of the Securities Act of 1933
Under Section 11 of the Securities Act of 1933, accountants are civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires.
Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information?
A. A plaintiff must prove reliance on the registration statement.
B. A plaintiff must prove privity with the accountant at issue.
C. The plaintiff must establish reliance and privity.
D. The plaintiff must establish reliance on the financial statement, privity with the accountant, and also that the securities were purchased in an initial public offering.
E. The plaintiff does not have to prove reliance on the financial statement nor must the plaintiff prove contractual privity.
A. A plaintiff must prove reliance on the registration statement.
B. A plaintiff must prove privity with the accountant at issue.
C. The plaintiff must establish reliance and privity.
D. The plaintiff must establish reliance on the financial statement, privity with the accountant, and also that the securities were purchased in an initial public offering.
E. The plaintiff does not have to prove reliance on the financial statement nor must the plaintiff prove contractual privity.
To recover damages, a plaintiff—someone who purchased a security covered by a flawed registration statement—does not need to prove reliance on the statement or to establish privity. The purchaser may recover damages without knowing about or relying on the flawed information or even being a party to the contractual agreement.
For which of the following does the Securities Exchange Act impose liability?
A. Fraudulent statements made to the SEC.
B. Fraudulent statements made to courts.
C. Fraudulent statements made to a client in connection with performing an audit.
D. Negligence in performing an audit or in the construction of a financial statement.
E. Fraud in performing an audit.
A. Fraudulent statements made to the SEC.
B. Fraudulent statements made to courts.
C. Fraudulent statements made to a client in connection with performing an audit.
D. Negligence in performing an audit or in the construction of a financial statement.
E. Fraud in performing an audit.
The Securities Exchange Act of 1934 imposes liability for making fraudulent statements to the SEC.
Which of the following must be shown in order to establish a violation of Section 20(a) of the Securities Exchange Act?
A. There was a primary violation by a controlled person.
B. The defendant controlled the primary violator.
C. The defendant in a meaningful way participated in the primary violation.
D. All the above.
E. There was a primary violation by a controlled person and the defendant controlled the primary violator, but not that the defendant in a meaningful way participated in the primary violation.
A. There was a primary violation by a controlled person.
B. The defendant controlled the primary violator.
C. The defendant in a meaningful way participated in the primary violation.
D. All the above.
E. There was a primary violation by a controlled person and the defendant controlled the primary violator, but not that the defendant in a meaningful way participated in the primary violation.
Under Section 20(a), to establish liability, the plaintiff must show (1) there was a primary violation by a controlled person; (2) the defendant controlled the primary violator; and (3) the defendant participated in a meaningful way in the primary violation.
Which of the following is true regarding any affirmative defenses available under Section 20(a) of the Securities Exchange Act?
A. There are no affirmative defenses available.
B. Comparative negligence is an affirmative defense.
C. Contributory negligence is an affirmative defense.
D. An affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
E. Comparative negligence and contributory negligence are affirmative defenses, and also an affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
A. There are no affirmative defenses available.
B. Comparative negligence is an affirmative defense.
C. Contributory negligence is an affirmative defense.
D. An affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
E. Comparative negligence and contributory negligence are affirmative defenses, and also an affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
Regarding affirmative defenses, section 20(a) allows defendants to avoid liability when "the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the [underlying] violation or cause of action."
Which of the following requires accountants to use adequate procedures so that they can detect illegal acts committed by an audited company?
A. The Private Securities Litigation Reform Act
B. The Public Securities Auditing Reform Act
C. The Public Detection Act
D. The Accountant Crime Deterrence Act
E. The Fraud and Illegality Deterrence Act
A. The Private Securities Litigation Reform Act
B. The Public Securities Auditing Reform Act
C. The Public Detection Act
D. The Accountant Crime Deterrence Act
E. The Fraud and Illegality Deterrence Act
The Private Securities Litigation Reform Act (PSLRA) placed new statutory obligations on accountants by requiring that they use adequate procedures when performing an audit so that they can detect any illegal acts committed by the audited company.
Which of the following is false regarding the Private Securities Litigation Reform Act?
A. The act sets forth a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity when conducting an audit.
B. The act makes no reference to notifying the SEC of wrongdoing although it does reference notifying the applicable company's board of directors.
C. The act states that accountants are liable for the portion of the damages for which they are responsible.
D. In the event of a willful violation of the act, the SEC can seek an injunction against the accountant.
E. Under the act, an accountant's silence when the accountant thinks he or she might have discovered fraud is enough to constitute aiding and abetting.
A. The act sets forth a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity when conducting an audit.
B. The act makes no reference to notifying the SEC of wrongdoing although it does reference notifying the applicable company's board of directors.
C. The act states that accountants are liable for the portion of the damages for which they are responsible.
D. In the event of a willful violation of the act, the SEC can seek an injunction against the accountant.
E. Under the act, an accountant's silence when the accountant thinks he or she might have discovered fraud is enough to constitute aiding and abetting.
The Private Securities Litigation Reform Act lists a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity. Depending on the circumstances, the accountant must immediately notify the board of directors, the audit committee, or the SEC.
Which of the following was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms?
A. The Public Accounting Firms Oversight Commission
B. The Public Company Accounting Oversight Board
C. The Securities Review Board
D. The Auditing Analysis and Review Board
E. The Certified Public Accountant Commission
A. The Public Accounting Firms Oversight Commission
B. The Public Company Accounting Oversight Board
C. The Securities Review Board
D. The Auditing Analysis and Review Board
E. The Certified Public Accountant Commission
The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board establishing greater oversight of public accounting firms.
Which of the following may be held liable in a malpractice action?
A. Accountants
B. Doctors
C. Real estate brokers
D. Architects
E. All of the above may be held liable for malpractice.
A. Accountants
B. Doctors
C. Real estate brokers
D. Architects
E. All of the above may be held liable for malpractice.
Accountants are not the only professionals likely to be sued for malpractice. Doctors may be sued for malpractice. Attorneys, lawyers, real estate brokers, architects, and other professionals may also be liable for breach of contract or negligence if they fail in their contractual obligations or do not perform their duty according to the standards of their professions, and another person is harmed.
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