Question 1

Pat,an accountant,includes a false statement in a report for Quantity,Inc. ,that is filed with the Securities and Exchange Commis?sion.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 Ex?change Act of 1934,liability may attach to

Accepted Answer

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

Question 2

Quin,an accountant,prepares for Reddy,Inc. ,a financial state?ment that omits a material fact.The statement is included in Reddy's registration statement with the Securities and Exchange Commission.Timor,who reads the statement,and Ubi,who does not,each buy Reddy stock.Velma reads the statement but does not buy the stock.Under Section 11 of the Securities Act of 1933,Quin may be liable to

Accepted Answer

The answer of Quin,an accountant,prepares for Reddy,Inc. ,a financial state?ment...

Question 3

Dwayne 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 standard of "a reasonably competent general practitioner of ordinary skill, experience, and capacity" is the standard for judging the performance of an attorney.

Question 4

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, tax return preparers like Feder may be liable for an understatement of their client's tax liability due to either negligent or willful misconduct. Therefore, both choices A and D are correct.

Question 5

Longhaul Freight,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,Longhaul must show that Midge

Accepted Answer

To succeed in a suit under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5, the plaintiff must show that the defendant acted with scienter, which means that they had the intention to deceive, manipulate, or defraud. The other choices, such as buying or selling a security, being incompetent, or knowing nothing about securities, are not relevant factors in this type of suit.

Question 6

National Business Systems Corporation (NBS)files a suit against Molly,its former accountant,alleging constructive fraud.NBS need not prove

Accepted Answer

Constructive fraud does not require a showing of intent to deceive, but rather involves conduct that creates or allows false impressions to be formed in the mind of another. However, NBS must still prove justifiable reliance, materiality, and detrimental reliance.

Question 7

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 8

Lebron accuses Moe,an attorney,of committing malpractice.Malpractice is

Accepted Answer

Malpractice refers to professional negligence, which is the failure to perform one's professional duties and obligations with reasonable care and expertise. In this case, Lebron is accusing Moe of not providing the expected level of legal expertise, which resulted in harm to Lebron. Therefore, the best choice is D, professional negligence.

Question 9

Rollo is an attorney whose clients include Superior Credit Company.If Rollo is negligent in his work for Superior,under the Restatement (Second)of Torts,Rollo may be liable to Superior and

Accepted Answer

The answer of Rollo is an attorney whose clients include...

Question 10

Lucille,an accountant,is subject to the ac?counting conventions,rules,and procedures that constitute generally ac?cepted accounting principles (GAAP).GAAP are determined by

Accepted Answer

GAAP are determined by the Financial Accounting Standards Board (FASB), which is an independent organization that sets accounting standards for public and private companies in the United States. The International Accounting Standards Board (IASB) sets accounting standards for countries outside the United States. The American Bar Association and the American Institute of Certified Public Accountants are professional organizations, but they do not set accounting standards.

Question 11

Marquis Company's liabilities exceed its assets,but the firm's employees falsify its books to reflect a positive net worth.Marquis hires Nan & Ollie,an accounting firm,to prepare a balance sheet,which is certified to show a net worth.Pure Credit Corporation relies on the balance sheet to make a loan to Marquis.When the firm defaults,Pure Credit files a suit against Nan & Ollie.Under the Ultramares rule,the accounting firm is most likely

Accepted Answer

Under the Ultramares rule, an accountant is only liable to third-party users of their work if there is privity of contract between them or if the third party is a foreseeable user. In this case, there was no privity of contract between Nan & Ollie and Pure Credit, so Nan & Ollie are not liable for the loan default.

Question 12

Bob,an accountant,intentionally misstates a material fact to mislead Consolidated Industries,Inc. ,a client.Consolidated justifiably relies on the misstatement to its detriment.Bob is most likely liable for

Accepted Answer

Actual fraud involves intentional misrepresentation with the intent to deceive and with knowledge of its falsehood. In this scenario, Bob intentionally misstated a material fact with the intent to mislead Consolidated Industries, which justifiably relied on the misstatement to its detriment. Therefore, Bob is most likely liable for actual fraud.

B) Constructive fraud involves a breach of a legal or equitable obligation without actual fraud, but with the intent to deceive or with such reckless disregard for another's rights that will support an inference of fraud. This scenario does not involve a breach of a legal or equitable obligation.

C) Destructive fraud is not a recognized legal term.

D) Virtual fraud is not a recognized legal term.

Question 13

Leslie,an accountant,enters into a contract to provide services to Marty.Leslie does not finish the work within the contract's deadline.Leslie is

Accepted Answer

Leslie is liable for breach of contract because she did not fulfill the obligations of the contract within the agreed upon deadline. Being a professional does not exempt her from fulfilling contractual obligations, and the fact that the work took longer than expected does not excuse her from meeting the agreed upon deadline. Marty may be entitled to damages as a result of Leslie's breach of contract.

Question 14

Penelope is an attorney.Penelope's conduct is governed by rules of professional conduct established by the state in which she is licensed,and the Model Rules of Professional Conduct drafted by

Accepted Answer

The American Bar Association (ABA) is the largest professional association for lawyers in the United States and has drafted the Model Rules of Professional Conduct, which serve as a template for many states' codes of professional conduct. Therefore, Penelope's conduct as an attorney is governed by the rules established by the state in which she is licensed and the Model Rules of Professional Conduct drafted by the ABA. None of the other options (federal courts, the American Institute of Certified Public Accountants, and the International Accounting Standards Board) are involved in regulating attorney conduct.

Question 15

Jim,an attorney,allows a statute of limitations to lapse on a claim by Midwest Manufacturing Company,a client.Jim

Accepted Answer

Allowing a statute of limitations to lapse on a client's claim is considered negligence and can be considered malpractice. Therefore, Jim can be held liable for malpractice.

Question 16

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

Accepted Answer

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

Question 17

Jim,an accountant,contracts to perform services for Kasey.Jim acts in good faith and conforms with generally accepted accounting principles,but makes a mistake in judgment.Jim is most likely

Accepted Answer

If Jim acted in good faith and conformed with generally accepted accounting principles, he would not be liable for a mistake in judgment. Liability would only apply if there was negligence, fraud, or other misconduct involved in the performance of his services, which is not the case here.

Question 18

Grover Nut Company files a suit against Hud,its former account?ant,alleging actual fraud.Grover must prove

Accepted Answer

To prove actual fraud, Grover Nut Company must demonstrate that Hud intentionally deceived them, which requires proving intent to deceive.

Question 19

Craig is an accountant whose clients include Digby National Corporation.Elbert is Craig's attorney.Working papers that Craig develops when preparing financial reports for Digby are owned by

Accepted Answer

The answer of Craig is an accountant whose clients include...

Question 20

Faith and Gordon are accountants who work together.Faith and Gordon can limit their potential liability for each other's misconduct by organizing their business as

Accepted Answer

The best choice is a professional corporation, which is a specific type of corporation that is available to certain types of professionals, including accountants. A professional corporation allows individuals to limit their personal liability for the misconduct of their partners or associates, while still maintaining the benefits of operating as a corporation. This is particularly important for professionals who work in areas where mistakes or negligence can result in significant financial losses or damages for clients.

Quiz 48: B: Professional Liaility and Accountability