Question 1

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

Accepted Answer

The answer of The Sarbanes-Oxley Act applies only to domestic...

Question 2

An accountant is not liable for an omission in a registration statement to a purchaser of securities if the omission had no causal connection to the purchaser's loss.

Accepted Answer

This statement is in accordance with the Securities Act of 1933, which outlines the liability of accountants regarding registration statements. The accountant would not be held liable if the omission did not contribute to the purchaser's loss.

Question 3

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

Accepted Answer

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

Question 4

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

The description provided specifically mentions "attorney". While the standard of "reasonably competent general practitioner of ordinary skill, experience, and capacity" may apply to individuals in various professions, the wording of the statement most closely aligns with the legal profession.

Question 5

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

Accepted Answer

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

Question 6

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 he or she fails to detect misconduct during an audit if a normal audit would have revealed the misconduct. This is because the accountant has a duty to exercise reasonable care and professional skepticism in conducting the audit. If the accountant breaches this duty, he or she may be held liable for any losses suffered by the client as a result of the misconduct.

Question 7

In all states,communications between an accountant and his or her client are privileged.

Accepted Answer

Communications between an accountant and his or her client are privileged in all states, meaning that they are protected from being disclosed in a legal proceeding or to third parties. This privilege is similar to attorney-client privilege.

Question 8

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

Accepted Answer

According to Section 11 of the Securities Act of 1933, an accountant can be held liable for material misstatements or omissions in a registration statement if they have privity of contract with the purchaser of the security. This means that the accountant must have a direct contractual relationship with the investor who suffered a loss, rather than simply providing services to the issuer or another party involved in the offering.

Question 9

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 any incorrect judgment as long as she did not commit a deliberate fraud or was grossly negligent. Thus, options A, B, and C are not correct.

Question 10

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.
-Nelson is

Accepted Answer

Nelson is liable for breach of contract because he did not finish the work within the agreed-upon deadline, causing OPI to fail to meet its deadlines. The fact that Nelson is an accountant or that the work took longer than anticipated does not absolve him of his responsibility to complete the work within the agreed-upon timeframe.

Question 11

Under the Sarbanes-Oxley Act,accountants need not retain working papers relating to an audit or review.

Accepted Answer

This statement is false. Under the Sarbanes-Oxley Act, accountants are required to retain working papers relating to an audit or review for a period of seven years.

Question 12

OPI may be entitled to

Accepted Answer

OPI may be entitled to payment from Nelson for the amount of the penalties in damages if Nelson breached a contract that included a penalty clause.

Question 13

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 "knowledgeable user" defense, which means that if the person buying or selling the security knew or should have known that the statement was false, then the accountant is not liable for any resulting damages.

Question 14

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

Accepted Answer

This is known as the "third-party beneficiary rule" which holds that a lawyer's duty is only to their client and not to anyone else, unless certain exceptions, such as fraud or malicious conduct, apply.

Question 15

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 16

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

Accepted Answer

Failure to follow these principles and standards shows a lack of careful and thorough examination of financial records and can lead to inaccuracies in reporting.

Question 17

For a plaintiff to recover damages from an accountant under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,ordinary negligence is not enough.

Accepted Answer

To recover damages from an accountant under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, the plaintiff must prove more than ordinary negligence. They must show that the accountant acted with scienter, which means that they acted with intent to deceive, manipulate, or defraud.

Question 18

Under the Sarbanes-Oxley Act,accountants must surrender possession of working papers relating to an audit or review to the party for whom the work was performed.

Accepted Answer

The Sarbanes-Oxley Act requires accountants to retain working papers for a specified period, but it does not mandate surrendering them to the client.

Question 19

For a plaintiff to recover damages under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,proof of intent is necessary.

Accepted Answer

In order to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, a plaintiff must prove that the defendant acted with the intent to deceive, manipulate, or defraud. This is known as scienter, and it is a necessary element of a securities fraud claim. Without proof of intent, a plaintiff cannot succeed in a Section 10(b) case.

Question 20

An accountant may be liable for a misstatement or omission of material fact in a registration statement.

Accepted Answer

An accountant may be held liable for misstatements or omissions of material fact in a registration statement under securities laws such as the Securities Act of 1933.

Quiz 40: Liability of Accountants and Other Professionals