Question 1

Ron is an accountant who was contacted by Zebra Toy Company to prepare financial statements. Zebra Toy Company told Ron that it wished to present these documents to Lion Wholesalers, Inc., a large supplier of toys. If Lion is convinced that Zebra Toy Company is financially solid, it will issue Zebra a large line of credit.
After Ron prepares the financial documents, Zebra presents the information to Lion Wholesalers and also to Tiger Toy Company, another wholesaler of toys. Zebra wishes to obtain a line of credit from Tiger as well as from Lion. If Ron committed a serious error by overstating Zebra Toy Company's financial soundness and the two creditors, Lion and Tiger, are damaged as a result, can these third parties recover damages from Ron? Explain.

Accepted Answer

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Question 2

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

Accepted Answer

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Question 3

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

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Question 4

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

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Question 5

Nancy is an auditor. She works in a state that uses the Ultramares Doctrine. She fraudulently prepared financial documents for her client, Star, Inc. Her client presented the information to Moonglow, Inc. Moonglow was a potential creditor of Star, Inc., and was seriously damaged by the fraudulent financial information. Moonglow sued Nancy. She claims she is not liable to Moonglow, a third party, since she was not provided with its name at the time the audit was prepared. Is she liable to Moonglow? Explain.

Accepted Answer

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Quiz 27: Accountants Liability

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

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?