Question 1

The accountant is the legal owner of working papers after an audit.

Accepted Answer

True

Question 2

State protection of an accountant-client privilege does not apply when a federal law is at issue.

Accepted Answer

The federal government can override state law and require an accountant to disclose confidential information in certain situations, such as during a criminal investigation or through a grand jury subpoena. Therefore, state protection of accountant-client privilege does not apply when a federal law is at issue.

Question 3

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance upon the fraudulent information.

Accepted Answer

This is known as the doctrine of foreseeable reliance, and it holds accountants accountable for their actions if they could reasonably foresee that others would depend on their fraudulent information.

Question 4

Many accountants and other professionals store confidential information on servers owned and maintained by a third party.

Accepted Answer

This is true. Many accountants and other professionals use cloud storage services provided by third-party companies to store confidential information.

Question 5

The role of accountants became a question of significant public interest after a significant amount of responsibility for the bankruptcy of ________ Corporation was placed on the firms that provided accounting services for the corporation.

Accepted Answer

A)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.
B)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.
C)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.
D)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.
E)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.

Question 6

Under the Restatement test,regarding liability for negligence to third parties,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.

Accepted Answer

This statement accurately reflects the Restatement test for liability for negligence to third parties as it relates to accountants. The accountant is generally only liable to those third parties who were specifically identified as intended users of the accountant's work product and those whose reliance on the work was reasonably foreseeable to the accountant at the time the work was performed.

Question 7

The use of cloud computing,where data and software are stored on servers owned and maintained by a third party,is standard practice and does not raise any ethical concerns.

Accepted Answer

The use of cloud computing raises ethical concerns related to data privacy, security, ownership, and control. These concerns include the risk of data breaches, unauthorized access, data loss, data mining, vendor lock-in, and censorship. Therefore, organizations need to assess and manage the ethical implications of cloud computing before adopting it as a standard practice.

Question 8

The accountant-client privilege means that the accountant has the privilege of demanding payment for accounting services.

Accepted Answer

The accountant-client privilege is a legal concept that protects communications between the accountant and the client from being disclosed without the client's consent. It does not relate to demanding payment for services.

Question 9

Which of the following was the result at the Supreme Court level in Matrixx Initiatives,Inc. ,v.Siracusano,the case in the text in which the plaintiffs brought a class action alleging that the defendant violated securities laws by failing to release reports that its product,Zicam Cold Remedy,had been found to result in a loss of smell?

Accepted Answer

A)The Court found that applying the "total mix" standard,the plaintiffs had adequately pleaded materiality and that they had also adequately pleaded scienter.
B)The Court found that applying the "total mix" standard,the plaintiffs had adequately pleaded materiality and that they had also adequately pleaded scienter.
C)The Court found that applying the "total mix" standard,the plaintiffs had adequately pleaded materiality and that they had also adequately pleaded scienter.
D)The Court found that applying the "total mix" standard,the plaintiffs had adequately pleaded materiality and that they had also adequately pleaded scienter.
E)The Court found that applying the "total mix" standard,the plaintiffs had adequately pleaded materiality and that they had also adequately pleaded scienter.

Question 10

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.

Accepted Answer

In the Case Opener "WorldCom," the court ruled that the chairman of WorldCom's board of directors could be held personally liable for misrepresentations of the company's condition in filings with the Securities and Exchange Commission.

Question 11

Accountants may not be sued for malpractice because that action is only available in the medical community.

Accepted Answer

Accountants can be sued for malpractice, also known as professional negligence, if they fail to exercise reasonable care and their actions result in financial harm to their clients. The availability of malpractice claims is not limited to the medical community.

Question 12

Under Section 11 of the Securities Act of 1933,a plaintiff may only recover if it can be established that the plaintiff purchased securities in an initial public offering.

Accepted Answer

Under Section 11 of the Securities Act of 1933, a plaintiff may recover if it can be established that the plaintiff purchased securities in a registered offering, not necessarily an initial public offering.

Question 13

Which of the following was the result on appeal in the case in the text In re Century Aluminum Company Securities Litigation,the case in the text involving plaintiffs who purchased secondary-offering shares and who attempted to sue under Section 11 of the Securities Act of 1933 for misrepresentations allegedly released regarding the secondary offering?

Accepted Answer

A)The court determined that it would be "often impossible" for purchasers of aftermarket shares to have claims based on Section 11 because their purchasing is normally done through brokers that don't acknowledge the source of the shares.Thus,the court affirmed the dismissal of the lawsuit.
B)The court determined that it would be "often impossible" for purchasers of aftermarket shares to have claims based on Section 11 because their purchasing is normally done through brokers that don't acknowledge the source of the shares.Thus,the court affirmed the dismissal of the lawsuit.
C)The court determined that it would be "often impossible" for purchasers of aftermarket shares to have claims based on Section 11 because their purchasing is normally done through brokers that don't acknowledge the source of the shares.Thus,the court affirmed the dismissal of the lawsuit.
D)The court determined that it would be "often impossible" for purchasers of aftermarket shares to have claims based on Section 11 because their purchasing is normally done through brokers that don't acknowledge the source of the shares.Thus,the court affirmed the dismissal of the lawsuit.
E)The court determined that it would be "often impossible" for purchasers of aftermarket shares to have claims based on Section 11 because their purchasing is normally done through brokers that don't acknowledge the source of the shares.Thus,the court affirmed the dismissal of the lawsuit.

Question 14

A[n] ________ action is an action against an accountant for failing to properly perform the job for which the accountant was hired.

Accepted Answer

A)Actions brought against attorneys,lawyers,real estate brokers,doctors,
architects,and other professionals are referred to as malpractice actions.
B)Actions brought against attorneys,lawyers,real estate brokers,doctors,architects,and other professionals are referred to as malpractice actions.
C)Actions brought against attorneys,lawyers,real estate brokers,doctors,architects,and other professionals are referred to as malpractice actions.
D)Actions brought against attorneys,lawyers,real estate brokers,doctors,architects,and other professionals are referred to as malpractice actions.
E)Actions brought against attorneys,lawyers,real estate brokers,doctors,architects,and other professionals are referred to as malpractice actions.

Question 15

When hired to perform a task,the accountant enters into a contract called an engagement letter with the client that makes explicit and implicit promises,which,if not fulfilled,subject the accountant to liability.

Accepted Answer

An engagement letter is a contract that outlines the services to be provided by the accountant, as well as any limitations and responsibilities. It includes both explicit and implicit promises, and failure to fulfill those promises can lead to liability for the accountant.

Question 16

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.

Accepted Answer

The statement accurately describes the reasonably foreseeable users test for accountant liability.

Question 17

The attorney-client privilege means that information given by a client to his or her accountant cannot be revealed without the client's permission.

Accepted Answer

The attorney-client privilege applies to communications between a client and their lawyer, not their accountant. However, there may be other confidentiality rules that apply to information shared with an accountant, such as professional ethics or state laws.

Question 18

Under common law,what are the three primary types of liability assessed against accountants?

Accepted Answer

A)Three primary types of liability are assessed to accountants under the common
law: negligence,breach of contract,and fraud.
B)Three primary types of liability are assessed to accountants under the common law: negligence,breach of contract,and fraud.
C)Three primary types of liability are assessed to accountants under the common law: negligence,breach of contract,and fraud.
D)Three primary types of liability are assessed to accountants under the common law: negligence,breach of contract,and fraud.
E)Three primary types of liability are assessed to accountants under the common law: negligence,breach of contract,and fraud.

Question 19

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.

Accepted Answer

The ability of third parties to make a claim against an accountant for negligence varies by state and is governed by state law, not federal law. Some states allow third-party claims while others do not.

Question 20

Plaintiffs have been successful in recent years bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Accepted Answer

Plaintiffs have been successful in bringing fraud suits against accountants under RICO, as RICO includes provisions for civil suits to be brought against individuals or organizations engaged in racketeering activity, including fraud.

Quiz 11: Liability of Accountants and Other Professionals