Question 1

Fast Auditors prepared audited financial statements for Mega Company's registration statement in compliance with the 1933 Securities Act. John bought stock in Mega Company. It was discovered that the financial statements prepared for the registration statement contained some important omissions. John sued Fast Auditors to recover his investment when Mega Company turned out to be a bad investment. What must John prove to recover from Fast Auditors?

Accepted Answer

The answer of Fast Auditors prepared audited financial statements for...

Question 2

Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?

Accepted Answer

The establishment of the American Institute of Certified Public Accountants predates the Sarbanes-Oxley Act of 2002 and was not a provision of the act. The other options (A, B, and D) are provisions of the act.

Question 3

The accounting firm of Gray & Co. did accounting work for both Regional Bank and Carter Electronics. Without Carter's knowledge or approval, Gray & Co. discussed Carter's financial problems with Regional Bank. In this situation, Gray & Co.

Accepted Answer

Gray & Co. breached a legal obligation to keep all client information confidential. The duty of confidentiality arises out of the contractual relationship between the accountant and the client, as well as ethical and legal obligations. Gray & Co. violated this duty by disclosing confidential information without Carter Electronics' knowledge or consent.

Question 4

Criminal liability for accountants

Accepted Answer

Criminal liability for accountants is possible under the Securities Act of 1933, the 1934 Act, state securities laws, and the Internal Revenue Code. This can include imprisonment, fines, and other penalties for violations. However, it is important to note that not all violations will result in criminal liability, and the specific circumstances of each case will need to be evaluated.

Question 5

Discuss how SEC rules affect the legal and the ethical relationship between accountants and the companies they audit.

Accepted Answer

The answer of Discuss how SEC rules affect the legal...

Question 6

GBH, an accounting firm, was hired to prepare financial statements for E-treme. Great State Bank has asked to see GBH's working papers since it is thinking about extending a $4 million line of credit to E-treme. Which of the following statements is correct?

Accepted Answer

GBH cannot show the bank the working papers without E-treme's permission because those papers are the property of the accounting firm but contain confidential client information. The client's consent is necessary to disclose such information to third parties, including banks, regardless of the bank's interest or relationship with the client.

Question 7

John is a CPA in charge of auditing his client, McMillen & Co. John's duty of care to McMillen will most likely  be breached if John

Accepted Answer

John's duty of care to McMillen requires him to follow GAAS, which are the generally accepted standards for auditing. If he fails to follow these standards, he risks breaching his duty of care to his client. Giving an oral report instead of a written report may not necessarily breach his duty of care, and giving incorrect advice based on an honest error in judgment may not constitute a breach of duty if he acted in good faith. Failing to give tax advice that would save his client money may be a missed opportunity for the client, but it is not necessarily a breach of John's duty of care.

Question 8

Under what circumstances are accountants liable to their clients for fraud?

Accepted Answer

The answer of Under what circumstances are accountants liable to...

Question 9

Under SOX, accountants for public companies must keep all audit work papers for at least

Accepted Answer

Under SOX, accountants for public companies must keep all audit work papers for at least seven years. This is to ensure that the records are available for inspection by the SEC or other regulatory bodies if needed, and to provide transparency and accountability in financial reporting.

Question 10

An auditor suspects its client is committing illegal acts that will have a material impact on its financial statements. What is the auditor legally required to do and under what circumstances would the auditor directly notify the SEC?

Accepted Answer

The answer of An auditor suspects its client is committing...

Question 11

Larry is a certified public accountant in a firm that audits public companies. Larry is accused of unethical conduct. Is Larry required to abide by the ethical standards of the Public Company Accounting Oversight Board?

Accepted Answer

As a certified public accountant auditing public companies, Larry is required to abide by the ethical standards of the Public Company Accounting Oversight Board. The PCAOB sets both audit rules and ethical guidelines, and failure to abide by these standards can result in penalties, fines, and loss of license for the CPA.

Question 12

In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?

Accepted Answer

The answer of In which of the following cases will...

Question 13

GBH, an accounting firm, was hired to prepare financial statements for E-treme. GBH

Accepted Answer

Working papers are prepared by an accountant for a client, and the client has the right to access those documents. The accountant cannot deny access to the client, as these documents pertain to the client's financial information.

Quiz 26: Accountants Liability