Question 1

In no states are communications between an accountant and his or her client privileged.

Accepted Answer

The answer of In no states are communications between an...

Question 2

An attorney may be liable in negligence to any third party who the attorney knows will rely on the attorney's work.

Accepted Answer

This is known as the third-party beneficiary rule or the foreseeability standard of liability, and it means that an attorney can be held liable for negligence if they should have foreseen that a third party would rely on their work and that the third party would be harmed as a result of the attorney's negligence.

Question 3

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.

Accepted Answer

An accountant's liability under Section 10(b) and Rule 10b-5 of the Securities Exchange Act does not require privity of contract. This means that the accountant can be held liable for any fraudulent misrepresentations or omissions made in connection with the purchase or sale of securities, even if they are not in direct contractual relationship with the investors.

Question 4

Jaime, an accountant, contracts to perform services for Kase. Jaime acts in good faith and conforms to generally accepted accounting principles, but makes a mistake in judgment. Jaime is most likely

Accepted Answer

As long as Jaime acted in good faith and followed generally accepted accounting principles, Jaime is not liable for mistakes in judgment. This is because professional service providers are held to a standard of care known as the "reasonable person" standard, which means they are not expected to be infallible or know everything, but rather to exercise reasonable care and skill in performing their duties. Additionally, the scenarios mentioned in choices A through C involve scenarios where Jaime may have failed to discover illegal or unethical conduct, which would not necessarily be attributable to a mistake in judgment.

Question 5

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

Accepted Answer

The Sarbanes-Oxley Act requires accountants to retain working papers relating to an audit or review for a period of 7 years.

Question 6

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

Accepted Answer

Accountants can be held criminally liable for violations of federal securities laws, such as insider trading or making false statements in financial statements.

Question 7

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 8

An accountant's working papers are the documents that are used and developed during an audit.

Accepted Answer

An accountant's working papers include all the documents and records used and developed during an audit or other accounting task. They serve as evidence of the work performed and support the conclusions reached by the accountant.

Question 9

An accountant is not liable for a misstatement to a purchaser of securities who knew of the misstatement but invested anyway.

Accepted Answer

If the purchaser was aware of the misstatement and invested anyway, they would be considered negligent and therefore the accountant would not be liable for any damages caused by the misstatement.

Question 10

An accountant is not liable for a misleading statement that affects the price of a security if the accountant acted in good faith.

Accepted Answer

Under the Securities Act of 1933, accountants, like other professionals, can be held liable for material misstatements or omissions in a registration statement or prospectus. However, if the accountant can demonstrate that they acted in good faith and had no knowledge that the statement or omission was false or misleading, they may not be held liable.

Question 11

Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does not finish the work within the contract's deadline. Leslie is

Accepted Answer

Leslie is liable for breach of contract because they did not fulfill their obligation within the agreed-upon deadline. Being a professional does not exempt one from fulfilling contractual obligations. The fault cannot be attributed to Marty unless there was a specific clause in the contract that stipulated such. The fact that the work took longer than foreseen is irrelevant unless the contract allowed for an extension of time or had a force majeure clause.

Question 12

Tiny is an accountant. Tiny's violation of generally accepted accounting principles and generally accepted auditing standards

Accepted Answer

Violation of generally accepted accounting principles and auditing standards is considered prima facie evidence of negligence in the accounting profession. Therefore, Tiny's violation would indicate that they were negligent.

Question 13

A failure to follow generally accepted accounting principles and gener?ally 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 established to ensure financial statements are accurate, reliable, and comparable. Failure to follow these principles and standards can result in inaccurate financial reporting, which is evidence of a lack of due diligence.

Question 14

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

Accepted Answer

Rex had a contractual obligation to complete the work within the specified timeframe. By failing to do so, Sofi suffered a loss in the form of a penalty payment and had to incur additional costs to hire someone else to complete the work. Therefore, Rex is liable for both Sofi's penalty payment and the cost to hire Trey.

Question 15

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

Accepted Answer

Working papers are not documents that order an accountant to audit a public company. Rather, they are the documents used by the accountant during the audit process to document their findings, procedures, and conclusions.

Question 16

An accountant's liability under the Securities Act of 1933 re?quires privity of contract with the purchaser of a security.

Accepted Answer

The answer of An accountant's liability under the Securities Act...

Question 17

A tax preparer that fails to give a taxpayer a copy of his or her tax return may be subject to a penalty under the Internal Revenue Code.

Accepted Answer

According to the Internal Revenue Code, tax preparers are required to provide a copy of the tax return to the taxpayer and failing to do so may result in a penalty.

Question 18

Lucille, an accountant, is subject to the ac?counting conventions, rules, and procedures that constitute generally ac?cepted accounting principles (GAAP). GAAP are determined by

Accepted Answer

The Financial Accounting Standards Board (FASB) is responsible for determining GAAP in the United States. The International Accounting Standards Board (IASB) is responsible for developing International Financial Reporting Standards (IFRS), which are used in many countries outside of the U.S. The American Bar Association is not responsible for determining accounting principles, and while the American Institute of Certified Public Accountants (AICPA) has some influence over GAAP, the FASB is the primary authority.

Question 19

An accountant who prepares a financial state?ment in good faith may avoid liability under Section 18 of the Securities Ex?change Act of 1934.

Accepted Answer

As long as the accountant prepares the financial statement in good faith and with reasonable care, they may avoid liability under Section 18 of the Securities Exchange Act of 1934. However, if the statement contains material misstatements or omissions, the accountant may still be held liable.

Question 20

The Sarbanes-Oxley Act applies to domestic, but not foreign, 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."

Quiz 41: Liability of Accountants Other Professionals