Question 1

For a plaintiff to recover damages from an accountant under Section 10(b) of the Securities Exchange Act of 1934, ordinary negligence is not enough.​

Accepted Answer

To recover damages under Section 10(b) of the Securities Exchange Act of 1934, the plaintiff must prove that the accountant engaged in intentional or reckless misconduct, not just ordinary negligence.

Question 2

Kiana 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

This standard is commonly used in the legal field to assess the performance of attorneys. It is used to determine whether an attorney has provided competent representation to their client.

Question 3

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely​

Accepted Answer

An accountant is liable if a normal audit would have revealed the misconduct. It is the responsibility of the accountant to exercise due professional care in performing the audit and to detect any material misstatements or fraud. If the accountant fails to do so, and a normal audit would have revealed the misconduct, the accountant may be held liable for any damages suffered by the client.

Question 4

Generally, an attorney is not liable to a nonclient unless the attorney has committed fraud or malicious conduct.​

Accepted Answer

Generally, attorneys have no duty of care to nonclients except in cases of fraud, malicious conduct or misrepresentations. This is known as the "general rule of nonliability."

Question 5

Accountants are exempt from the criminal provisions of federal tax laws.​

Accepted Answer

Accountants are not exempt from the criminal provisions of federal tax laws. Any individual, including accountants, can be prosecuted if they violate federal tax laws.

Question 6

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

Accepted Answer

The Sarbanes-Oxley Act applies to both domestic and foreign public accounting firms that provide auditing services to issuers, which are companies that are publicly traded in the U.S.

Question 7

Working papers are the documents through which a court orders an accountant to audit a public company.​

Accepted Answer

Working papers are not documents through which a court orders an accountant to audit a public company. They are documents prepared by the auditor during the course of an audit that provide evidence of the work performed and conclusions reached.

Question 8

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.​

Accepted Answer

The answer of An accountant is liable for an omission...

Question 9

An accountant's liability under the Securities Act of 1933 does I require privity of contract with the purchaser of a security.​

Accepted Answer

Under the Securities Act of 1933, an accountant can be held liable for misstatements or omissions in a registration statement without the need for privity of contract with the purchaser.

Question 10

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

Accepted Answer

Generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS) are the standards followed by accounting and auditing professionals. A failure to follow these standards can be seen as a lack of due diligence, as they are considered to be the accepted best practices in the industry.

Question 11

Fact Pattern 47-1​
Nelson, an accountant, enters into a contract to provide services to Operational Processes, Inc. (OPI). Nelson does not finish the work within the contract's deadline. This causes OPI to fail to meet certain other deadlines owed to Prime Bank, which results in the firm's payment of penalties to the bank.
-Refer to Fact Pattern 47-1. OPI may be entitled to​

Accepted Answer

Nelson breached the contract by not finishing the work within the contract's deadline, which caused OPI to incur penalties from Prime Bank. OPI may be entitled to recover the amount of the penalties as damages from Nelson for the breach of contract. Option B and C are not relevant in this case as they relate to future contracts, and OPI has already suffered the damages. Option D is incorrect as Nelson is liable for the breach of the contract.

Question 12

Odette, an accountant, contracts to perform services for Percy. Odette acts in good faith and conforms to generally accepted accounting principles, but makes an incorrect judgment. Odette is most likely​

Accepted Answer

Odette acted in good faith and conformed to generally accepted accounting principles, therefore she is not liable for an incorrect judgment unless she committed fraud or acted with gross negligence. Odette is not responsible for discovering fraud or defalcation as it is the client's responsibility to disclose such information.

Question 13

An accountant is liable for a misleading statement that affects the price of a security, unless the accountant acted in good faith.​

Accepted Answer

The answer of An accountant is liable for a misleading...

Question 14

Fact Pattern 47-1​
Nelson, an accountant, enters into a contract to provide services to Operational Processes, Inc. (OPI). Nelson does not finish the work within the contract's deadline. This causes OPI to fail to meet certain other deadlines owed to Prime Bank, which results in the firm's payment of penalties to the bank.
-Refer to Fact Pattern 47-1. Nelson is​

Accepted Answer

Nelson is liable for breach of contract because he did not complete the work within the agreed upon deadline, which resulted in OPI's failure to meet deadlines owed to Prime Bank and incurring penalties. As an accountant, Nelson is a professional, but that does not excuse him from fulfilling his contractual obligations. The fact that the work took longer than foreseen does not absolve him of liability either, unless there was a valid excuse for the delay.

Question 15

An accountant is not liable for a false statement that affects the price of a security if the buyer or seller of the security knew the statement was false.​

Accepted Answer

This is known as the "In Pari Delicto" doctrine, which means that if both parties to a security transaction are equally at fault, then neither party can sue the other for fraud. In this case, the buyer or seller of the security would be equally at fault for knowingly accepting a false statement, and therefore the accountant would not be liable.

Question 16

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.​

Accepted Answer

Under the Sarbanes-Oxley Act, working papers are the property of the accounting firm that created them, not the client. However, clients have the right to access and inspect the working papers upon request.

Question 17

Under federal law, communications between an accountant and his or her client are privileged.​

Accepted Answer

Under federal law, there is no general accountant-client privilege like attorney-client privilege. Some states may have specific laws, but federally, such communications are not protected.

Question 18

Accountants must surrender possession of working papers relating to an audit or review to the party for whom the work was performed.​

Accepted Answer

Accountants typically retain ownership of their working papers, as they are considered their own records and documentation of the work performed, unless there is a legal or contractual obligation to surrender them.

Question 19

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

Accepted Answer

The answer of Penalties for aiding or assisting in the...

Question 20

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.​

Accepted Answer

An accountant can be held liable for a misstatement or omission of material fact in a registration statement under certain conditions, such as if they knew or should have known of the misstatement and did not take steps to correct it.

Quiz 47: Professional Liability and Accountability

For a plaintiff to recover damages from an accountant under Section 10(b) of the Securities Exchange Act of 1934, ordinary negligence is not enough.​

Kiana 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​

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely​

Generally, an attorney is not liable to a nonclient unless the attorney has committed fraud or malicious conduct.​

Accountants are exempt from the criminal provisions of federal tax laws.​

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

Working papers are the documents through which a court orders an accountant to audit a public company.​

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.​

An accountant's liability under the Securities Act of 1933 does I require privity of contract with the purchaser of a security.​

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

Odette, an accountant, contracts to perform services for Percy. Odette acts in good faith and conforms to generally accepted accounting principles, but makes an incorrect judgment. Odette is most likely​

An accountant is liable for a misleading statement that affects the price of a security, unless the accountant acted in good faith.​

An accountant is not liable for a false statement that affects the price of a security if the buyer or seller of the security knew the statement was false.​

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.​

Under federal law, communications between an accountant and his or her client are privileged.​

Accountants must surrender possession of working papers relating to an audit or review to the party for whom the work was performed.​

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

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.​

For a plaintiff to recover damages from an accountant under Section 10(b) of the Securities Exchange Act of 1934, ordinary negligence is not enough.

Kiana 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

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely

Generally, an attorney is not liable to a nonclient unless the attorney has committed fraud or malicious conduct.

Accountants are exempt from the criminal provisions of federal tax laws.

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

Working papers are the documents through which a court orders an accountant to audit a public company.

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.

An accountant's liability under the Securities Act of 1933 does I require privity of contract with the purchaser of a security.

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

Odette, an accountant, contracts to perform services for Percy. Odette acts in good faith and conforms to generally accepted accounting principles, but makes an incorrect judgment. Odette is most likely

An accountant is liable for a misleading statement that affects the price of a security, unless the accountant acted in good faith.

An accountant is not liable for a false statement that affects the price of a security if the buyer or seller of the security knew the statement was false.

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.

Under federal law, communications between an accountant and his or her client are privileged.

Accountants must surrender possession of working papers relating to an audit or review to the party for whom the work was performed.

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

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.