Question 1

Which of the following is correct concerning the professional-client privilege and working papers produced by an auditor while auditing the records of a client?

Accepted Answer

The professional-client privilege usually belongs to the client and an auditor may not refuse to disclose the privileged material in a courtroom if the client consents to its disclosure.

Question 2

Mr.Green is a CPA who has been hired to perform an audit of a publicly traded corporation.As part of his duties,Mr.Green comes into possession of sensitive materials of the corporation.After the audit is over what should Mr.Green do with the materials?

Accepted Answer

Records that a client entrusts to a professional must be returned to the client.

Question 3

Which of the following means knowledge on the part of the person making the representation,at the time when they are made,that they are false?

Accepted Answer

Scienter means knowledge on the part of the person making the representation,at the time when they are made,that they are false.

Question 4

Which of the following statements about the New York Stock Exchange's rules in regard to analysts' conflicts of interest is false?

Accepted Answer

The SEC also has approved NYSE and NASDAQ rules regarding analysts' conflicts of interest.The rules are substantially similar.They prohibit a securities firm from offering favorable research to a company in order to induce the company to use the securities firm's investment banking service.The rules increase analyst independence by prohibiting investment banking personnel from supervising analysts or approving research reports.Analyst compensation may not be tied to a specific investment banking services transaction.

Question 5

Incorporated professionals can escape liability for their associate's torts unless:

Accepted Answer

While partners in a partnership are jointly and severally liable for each other's negligence,states permit incorporated professionals to escape liability for their associate's torts,unless the professional actually supervised the wrongdoing associate or participated in the tort.

Question 6

Which of the following specifically authorizes the SEC to issue point-of-sale disclosure rules when investors purchase investment products or services?

Accepted Answer

In 2010,Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act.The Dodd-Frank Act specifically authorizes the SEC to issue point-of-sale disclosure rules when investors purchase investment products or services,such as mutual fund and investment management services.

Question 7

Which of the following statements about the Public Company Accounting Oversight Board (PCAOB)is false?

Accepted Answer

The PCAOB is not a federal agency,but a nonprofit corporation with broad regulatory power like the Financial Industry Regulatory Authority (FINRA),a self-regulatory organization that regulates securities brokers and dealers.It has five members,only two of which may be CPAs.No board member may receive any share of profits or compensation from a public accounting firm.

Question 8

Some courts allow a professional to use the defense of ________,which stands for the idea that damages are proportioned between the parties to a negligence action in proportion to their relative fault.

Accepted Answer

Some courts allow the defense of contributory negligence or the defense of comparative negligence,such as when clients negligently fail to follow a consultant's advice or when clients possess information that makes their reliance on an investment banker unwarranted.Comparative negligence is the basic idea that damages are proportioned between the parties to a negligence action in proportion to their relative fault.

Question 9

Under which of the following will courts refuse to intervene in a dispute between litigants when both have engaged in wrongdoing?

Accepted Answer

Under the doctrine of in pari delicto,courts refuse to intervene in a dispute between litigants when both have engaged in wrongdoing.For example,when a person has engaged in fraud,that person will not be able to sue for damages another person who was involved with the same fraudulent scheme."[T]he law will not extend its aid to either of the parties or listen to their complaints against each other,but will leave them where their own acts have placed them."

Question 10

A person who is injured in his/her business or property by reason of a professional's conduct or participation,directly or indirectly,in an enterprise's affairs through a pattern of racketeering activity may recover ________ from the professional.

Accepted Answer

A person who is injured in his/her business or property by reason of a professional's conduct or participation,directly or indirectly,in an enterprise's affairs through a pattern of racketeering activity may recover treble damages (three times his/her actual damages)from the professional.

Question 11

The SEC has adopted ________,which requires an analyst's research report to include the analyst's certification that views expressed in the report accurately reflect his/her personal views.

Accepted Answer

The SEC has adopted Regulation AC (Analyst Certification).Although not designed to implement the requirements of SOX,Regulation AC requires an analyst's research report to include the analyst's certification that the views expressed in the report accurately reflect her personal views.

Question 12

The Dodd-Frank Act adds new ________ to the 1934 Act,making it unlawful for any broker,dealer,or other person selling or offering to sell or purchasing or offering to purchase any security (other than a government security),to make for the purpose of inducing the purchase or sale of such security any false or misleading misstatement of material fact,if the person knew or had reasonable ground to believe the statement was false or misleading.

Accepted Answer

The Dodd-Frank Act adds new Section 9(a) (4)to the 1934 Act,making it unlawful for any broker,dealer,or other person selling or offering to sell or purchasing or offering to purchase any security (other than a government security),to make for the purpose of inducing the purchase or sale of such security any false or misleading misstatement of material fact,if the person knew or had reasonable ground to believe the statement was false or misleading.

Question 13

Which of the following expresses whether the audit has been performed in compliance with GAAS and whether,in the auditor's opinion,the financial statements fairly present the client's financial position and results of operations in conformity with GAAP?

Accepted Answer

The opinion letter expresses whether the audit has been performed in compliance with GAAS and whether,in the auditor's opinion,the financial statements fairly present the client's financial position and results of operations in conformity with GAAP.

Question 14

Which of the following statements about limited liability partnerships is true?

Accepted Answer

An LLP is similar to a partnership,except that a partner's liability for his partners' professional malpractice is limited to the partnership's assets,unless the partner supervised the work of the wrongdoing partner.A partner retains unlimited liability for his own malpractice.Nearly every state and the District of Columbia have passed LLP statutes.The LLP has become the preferred form of business for professionals who do not incorporate.

Question 15

The Private Securities Litigation Reform Act of 1995 requires an auditor to:

Accepted Answer

The Private Securities Litigation Reform Act of 1995 requires an auditor to report to the Securities and Exchange Commission a client's illegal act that has a material impact on the financial statements of the client when the client has failed to take remedial action.

Question 16

Jerry,an accountant,works for H & J Accounting,a limited liability partnership.Jerry injuries his client by failing to act as the ordinarily prudent accountant would act.Generally speaking,is Jerry liable to the client for professional misconduct?

Accepted Answer

While there are significant taxation advantages to incorporation,the principal advantage of incorporation-limited liability of the shareholders-does not isolate professionals from liability for professional misconduct.For example,an accountant who injures his client by failing to act as the ordinarily prudent accountant would act has liability to his client,despite the incorporation of the accountant's business.

Question 17

Which of the following is means there is a direct contractual relation between the parties?

Accepted Answer

Privity of contract means the existence of a direct contractual relation between the parties.

Question 18

According to the Sarbanes-Oxley Act,how long must audit and review working papers be retained?

Accepted Answer

The Sarbanes-Oxley Act mandates that working papers and audit materials be kept for a period of 7 years.

Question 19

Due to violations of securities,tax,and other laws,a professional might be subject to an administrative proceeding that may result in:

Accepted Answer

A professional's wrongful conduct may be the subject of administrative proceedings by the Securities and Exchange Commission and state licensing boards.An administrative proceeding may result in the revocation of a professional's license to practice or the suspension from practice.

Question 20

Which of the following created an independent board that oversees the audits of public companies?

Accepted Answer

One of the main features of the Sarbanes-Oxley Act (SOX)is the creation of an independent board that oversees the audits of public companies.Congress's perception was that auditing firms were not sufficiently independent of the public companies they audited due in part to the audit firms' receiving sizable nonaudit consulting fees from their audit clients.Thus,SOX created a Public Company Accounting Oversight Board (PCAOB).

Quiz 46: Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals