Question 1

Meri,an accountant,includes a false statement in a report for Novelty Paper Products,Inc.(NPPI)that is filed with the Securities and Exchange Commission.When Otho buys stock in NPPI and loses money on the investment,he files a suit against Meri,alleging fraud under the 1934 Securities Exchange Act.To avoid liability,Meri can show that she

Accepted Answer

Meri can argue that she was not aware that her statement was false, which would negate the element of intent necessary for a fraud claim under the 1934 Securities Exchange Act. However, the other options would not necessarily absolve her of liability.

Question 2

Bryce's accountant is Caleb and his attorney is Delilah.All states protect,as privileged information,Bryce's communications with

Accepted Answer

The answer of Bryce's accountant is Caleb and his attorney...

Question 3

Jerzy is an accountant whose clients include Kopper Kettle Restaurants,Inc.For a violation of securities laws,Jerzy may be subject to

Accepted Answer

Jerzy may be subject to criminal liability for the violation of securities laws. As an accountant, he can be held responsible for his clients' actions if he knowingly participated in or assisted in the wrongdoing. However, he may not be subject to corporate or comprehensive liability, and there is no indication that he would have no liability at all.

Question 4

Longway Trucking,Inc.,files a suit against Midge,an accountant,under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission.To succeed in recovering damages,Longway must show that Midge

Accepted Answer

To succeed in recovering damages under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, Longway must show that Midge acted with scienter, which means intentionally or recklessly making a false statement or omitting a material fact. Buying or selling a security is not necessary for liability under these provisions. Incompetence or lack of knowledge about securities is also not relevant.

Question 5

Flynn,an accountant,helps Grange Supply Company prepare and file a false federal corporate income tax return.Under the Internal Revenue Code,this is

Accepted Answer

Under the Internal Revenue Code, preparing and filing a false federal corporate income tax return is a felony punishable by both a fine and imprisonment.

Question 6

Bowie,a certified public accountant,prepares and certifies Candy Products Corporation's financial statements.These statements are included in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities.Dona buys a security covered by the registration statement.Based on this transaction,Dona files a suit against Bowie under Section 11 of the Securities Act of 1933 and Section 10(b)of the Securities Exchange Act of 1934.To succeed in the suit,what must Dona prove Bowie responds that Dona was not in privity with him and that even if she had been in privity,she cannot prove his lack of due diligence.Can Bowie prevail on these grounds Why or why not

Accepted Answer

The answer of Bowie,a certified public accountant,prepares and certifies Candy...

Question 7

Bertha is an accountant with Chocolate Shoppes Corporation.Doral buys Chocolate stock and loses money on the investment.To recover from Bertha under Section 10(b)of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission,Doral must prove

Accepted Answer

To recover from Bertha under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, Doral must prove scienter (intent or knowledge of wrongdoing), fraud, reliance (that Doral relied on her misrepresentation), materiality (that the misrepresentation was significant), and causation (that the misrepresentation caused Doral's losses). Therefore, option D is the correct choice.

Question 8

Dominique,a certified public accountant,provides accounting services to Eagle Corporation.The services include preparing Eagle's financial reports and issuing opinion letters based on the reports.In 2008,Eagle falls into serious financial trouble,but neither Dominique's reports nor her opinion letters indicate this situation.Relying on Dominique's portrayal of Eagle's financial situation,Eagle borrows a large sum of money to build a new shipping facility.In lending Eagle the money,First National Bank relies on Dominique's opinion letter.Dominique is aware of this reliance.If Dominique did not engage in intentional fraud but was negligent,what is her potential liability

Accepted Answer

The answer of Dominique,a certified public accountant,provides accounting services to...

Question 9

Pace is an attorney,whose clients include Quikfeet Running Shoes Company.Unless Quikfeet has violated securities law,the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Accepted Answer

The answer of Pace is an attorney,whose clients include Quikfeet...

Question 10

Lacy is an accountant who prepares her clients' tax returns.Muff is not an accountant,but he also prepares tax returns for clients.Under the Internal Revenue Code,liability for preparing a false return may be imposed on

Accepted Answer

The Internal Revenue Code holds both Lacy and Muff liable for preparing a false return, regardless of whether or not they are accountants.

Question 11

Pat,an accountant,includes a false statement in a report for Quantity Overstock,Inc.,that is filed with the Securities and Exchange Commission.Quantity publishes a misleading ad about its future prospects.Rita sees the ad and calls Stan,who buys stock in Quantity.Under Section 18 of the Securities Exchange Act of 1934,liability may attach to

Accepted Answer

The answer of Pat,an accountant,includes a false statement in a...

Question 12

Feder prepares federal corporate income tax returns for Giant Stores,Inc.,and other firms.Under the Internal Revenue Code,with respect to an understatement of a client's tax liability,Feder may be liable for

Accepted Answer

Feder may be liable for an understatement of a client's tax liability due to either negligent or willful misconduct under the Internal Revenue Code.

Quiz 42: Liability of Accountants Other Professionals