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 avoid liability if she can show that she was not aware her statement was false. Ignorance of the false statement would mean that she did not have the intent to commit fraud, which is necessary for a claim under the 1934 Securities Exchange Act. The other choices do not provide a valid defense for Meri.

Question 2

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 3

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

Filing a false federal corporate income tax return is considered a felony under the Internal Revenue Code and is punishable by both a fine and imprisonment.

Question 4

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 5

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 6

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 7

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 8

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

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 require a plaintiff to prove the following elements: 1) the defendant acted with scienter (intent or recklessness), 2) there was a material misrepresentation or omission made by the defendant, 3) the plaintiff relied on the misrepresentation or omission, 4) the reliance caused the plaintiff's damages. Therefore, Doral must prove scienter, fraud, reliance, materiality, and causation.

Question 9

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 that she had knowledge of or recklessly disregarded facts that made her statements or omissions misleading. Buying or selling a security is not a requirement for liability under Rule 10b-5. Incompetence or lack of knowledge about securities is also not relevant to the claim.

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

Both Lacy and Muff can be held liable for preparing a false tax return under the Internal Revenue Code. The law applies to anyone who prepares or assists in preparing a return, regardless of whether they are a professional accountant or not.

Question 11

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

Under the Internal Revenue Code, a tax return preparer may be liable for an understatement of the client’s tax liability due to either negligent or willful misconduct.

Question 12

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 his involvement in the securities law violation committed by Kopper Kettle Restaurants, Inc. While corporate liability may also apply to the company itself, and comprehensive liability may involve both criminal and civil liability, the most likely scenario for Jerzy would be criminal liability for his own actions as an accountant. Option D (no liability) can be eliminated as Jerzy could be held responsible for his participation in the violation.

Quiz 30: Liability of Accountants Other Professionals