Question 1

If Small Co.uses a GAAS auditing standard,it will-most likely-be subject to an adverse opinion.

Accepted Answer

If Small Co. properly complies with GAAS auditing standards, they should receive an unqualified opinion. An adverse opinion would only be issued if there were significant departures from GAAS or material misstatements in the financial statements.

Question 2

GAAP was created by the FASB.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) was created by the FASB (Financial Accounting Standards Board).

Question 3

Nadia,a licensed physician,operated on a patient at Saint Jerome's Regional Medical Center.Dr Nadia wore a SJRMC coat but did not have surgical privileges.St Jerome's could be liable on the basis of ostensible authority.

Accepted Answer

Even though Dr. Nadia did not have surgical privileges, her use of SJRMC coat could lead patients to believe that she had the authority to perform surgeries at the hospital. This is called ostensible authority or apparent authority, and St. Jerome's could be held liable for any harm caused by Dr. Nadia's actions.

Question 4

Certified public accountants are licensed after they pass a federal accountant's exam.

Accepted Answer

Certified public accountants (CPAs) are licensed by individual states, not at the federal level, after passing the Uniform CPA Examination.

Question 5

In a Type 1 accounting arrangement,the client can sue the accountant for malpractice.

Accepted Answer

In a Type 1 accounting arrangement, the accountant has a legal duty of care to the client and can be sued for malpractice if they breach that duty.

Question 6

Suppose Mary is a CPA and John hires her to create a financial audit.Further,suppose that John uses Mary's work to secure a loan from BigBank.BigBank never met Mary or communicated with her.Suppose further that John defaults on his loan contract with BigBank.Under the Cardozo standard,if BigBank decides to sue Mary the CPA BigBank will win because of privity with Mary.

Accepted Answer

Under the Cardozo standard, BigBank would not be able to sue Mary because there was no privity of contract between Mary and BigBank. Mary only had a professional duty of care to John, who was her client.

Question 7

Sarbanes-Oxley created the Public Company Accounting Oversight Board that now supervises all public accounting firms.

Accepted Answer

The creation of the Public Company Accounting Oversight Board (PCAOB) is one of the main provisions of the Sarbanes-Oxley Act. The PCAOB now has the authority to oversee and regulate all public accounting firms that audit publicly traded companies.

Question 8

Generally,if Jake is a certified financial advisor under SEC rules,he has a fiduciary duty to his client(s).

Accepted Answer

Certified financial advisors who operate under SEC rules have a legal responsibility to act in their clients' best interest, which is known as a fiduciary duty.

Question 9

Joseph is an attorney who is being sued by a former client,Trudy,for malpractice.If a third party,ONNCO,Inc. ,was also injured during the incident,along with Trudy,ONNCO can also sue Joseph as well.

Accepted Answer

The answer of Joseph is an attorney who is being...

Question 10

If BigCo,Inc.decides to file a registration statement with the SEC,Accounting Firm PLLC can protect itself from potential lawsuits if it has conducted its own due diligence.

Accepted Answer

By conducting its own due diligence, Accounting Firm PLLC can ensure the accuracy and completeness of its audit work and disclosures, which can help protect it from potential lawsuits related to the registration statement filed with the SEC.

Question 11

When dealing with architects,the "cost of repair" rule applies to situations where a structure is unusable for its originally intended purpose.

Accepted Answer

The "cost of repair" rule generally refers to the measure of damages when a structure does not conform to the agreed specifications or plans, but it does not specifically imply that the structure is unusable for its originally intended purpose. It focuses on the cost to repair the defect to meet the agreed specifications.

Question 12

Juanita was misdiagnosed by Dr.Samir at St.Jerome Regional Medical Center (SJRMC).Upon further investigation,Juanita discovered that Dr.Samir was let go from the Medical Center across town for complaints alleging negligence.If true,SJRMC may be liable for negligent credentialing.

Accepted Answer

The answer of Juanita was misdiagnosed by Dr.Samir at St.Jerome...

Question 13

An accountant who prepares a fraudulent financial statement is liable to anyone who is in actual privity with the accountant or her firm.

Accepted Answer

The answer of An accountant who prepares a fraudulent financial...

Question 14

Anna who is 17 years old,sees a medical doctor and becomes concerned about what the doctor tells her-she has ovarian cancer.This report is protected by statute under the doctor-patient privilege and cannot be disclosed to her family without her permission.

Accepted Answer

The answer of Anna who is 17 years old,sees a...

Question 15

Jose Alarcon is an attorney and founder of Alarcon & Associates,LLP.In preparing for a trial,he begins to collect evidence that he will use to represent his client at trial.This material is protected under the attorney-client privilege.

Accepted Answer

The material collected for trial preparation is protected under the work-product doctrine, not attorney-client privilege. Attorney-client privilege protects confidential communications between an attorney and their client.

Question 16

A type two arrangement between an accountant and a client follows ordinary contract law principles.

Accepted Answer

The answer of A type two arrangement between an accountant...

Question 17

Kits wants to become a 'public accountant' for publicly traded companies but must first be a certified public accountant under SEC rules.

Accepted Answer

The answer of Kits wants to become a 'public accountant'...

Question 18

The Platonic Stabilizing Standard refers to a foreseeable plaintiff in privity with the CPA.

Accepted Answer

The Platonic Stabilizing Standard refers to a standard for determining the duty of care owed by a CPA to third parties who are not in privity of contract.

Question 19

When an auditor performs a "qualified opinion" audit,they are certifying the results to the New York Stock Exchange under the Sarbanes-Oxley Act.

Accepted Answer

A "qualified opinion" in an audit report means the auditor has reservations about certain aspects of the company's financial statements, but it does not specifically relate to certifying results to the New York Stock Exchange under the Sarbanes-Oxley Act. The Sarbanes-Oxley Act involves broader requirements for financial reporting and internal controls.

Question 20

Suppose Mary is a CPA and John hires her to create a financial audit for the purpose of securing a loan from BigBank,and Mary prepared the report with this purpose in mind.Suppose further that John defaults on his loan contract with BigBank.If BigBank decides to sue Mary,BigBank can argue that Mary owed it a duty of care.

Accepted Answer

When Mary prepared the financial audit report with the specific purpose of helping John secure a loan from BigBank, she owed a duty of care to BigBank to ensure that the report was accurate and reliable. If John defaulted on his loan and BigBank suffered losses as a result of relying on the report, they may have a valid claim against Mary for breaching this duty of care.

Quiz 32: Professional Liability