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Exam 40: Liability of Accountants and Other Professionals

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Question 31

True/False

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In some states, an accountant is potentially liable to any user who relies on the professional's statement or report whether or not the reliance was foreseeable.

A) True
B) False

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Question 32

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An accountant who uncovers suspicious financial dealings in a client's books and fails to investigate or to inform the client is liable for any resulting loss.

A) True
B) False

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Question 33

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In general, professionals should discharge their professional responsibilities to the best of their ability.

Leisure Inc.'s accountant is Mel and the firm's attorney is Nola. All states protect, as privileged information, Leisure's communications with

To avoid liability for securities violations, an accountant must use due diligence in preparing a financial statement included in a registration statement-merely asking questions of a corporate officer or director meets this standard.

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

An accountant who fails to discover every impropriety in a client's books is liable to the client on a negligence theory for any resulting loss.

Beth is an accountant whose clients include Concessions Inc. If Beth is negligent in her work for Concessions, most courts would hold her liable to the client and

Under the Private Securities Litigation Reform Act, an accountant who participates in, but is unaware of, illegal conduct may be liable for proportionately less than the entire loss.

An accountant who fails to perform for a client as agreed has breached their contract, and the client has the right to pursue a claim for damages.

Hoki, an accountant, accumulates working papers while performing an audit for Insurance Corporation. After the audit, these documents belong to

Reliant Inc. files a suit against Saul, 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, Reliant must show that Saul

Ty is an accountant whose clients include United Corporation. Working papers that Ty develops when preparing financial reports for United are owned by

Rico, an accountant, contracts to conduct an audit for Sushi Restaurants. In performing the audit, Rico fails to detect a Sushi employee's obvious theft of funds from the firm. Rico is most likely

Haji is an accountant charged with negligence by Infrastructure Service Inc., a client. Haji may successfully defend against the claim if he can show

Rand, an accountant, includes a false statement in a report for Social Media Inc. that is filed with the Securities and Exchange Commission. When Teo buys stock in Social Media and loses money on the investment, he files a suit against Rand, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Rand can show that he

Negligence cases against professionals often focus on the standard of care exercised by the professional.

Ben is an accountant whose clients include Capital Inc. Under the Ultramares rule, if Ben is negligent in his work for Capital, he could be liable to the client and

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

An accounting firm can lawfully perform both auditing and non-auditing services for the same company at the same time because the firm could otherwise be exposed to potentially massive liability.