Question 1

Auto Company's liabilities exceed its assets. The firm hires Bass, an accountant, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Credit Bank relies on the document to make a loan to Auto. When the firm defaults, the bank files a suit against Bass. Under the Restatement (Third) of Torts , Bass is most likely

Accepted Answer

A)  liable because the accountant owed a duty to the client.
B)  liable because the accountant owed a duty to any foreseeable user.
C)  liable if the accountant knew the bank would rely on the balance sheet.
D)  not liable because accountant and the bank were not in privity.E) B) and C)
F) A) and C)

Question 2

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

Accepted Answer

A)  any third party.
B)  no third party with whom the accountant is not in privity or "near privity."
C)  third parties who are foreseen users of the work.
D)  third parties who are reasonably foreseeable users of the work.E) All of the above
F) C) and D)

Question 3

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

Accepted Answer

A)  only the purchase and sale of a security.
B)  fraud, reliance, materiality, and lack of knowledge about securities.
C)  fraud, reliance, materiality, and incompetence.
D)  fraud, reliance, materiality, causation, and scienter .E) B) and C)
F) A) and B)

Question 4

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou

Accepted Answer

A)  can be held liable for malpractice.
B)  has violated an ethical standard but cannot be held liable.
C)  is subject to criminal penalties under the statute of limitations.
D)  will be automatically disbarred.E) C) and D)
F) All of the above

Question 5

An auditor who accepts a client's explanation regarding financial irregularities, despite contradictory evidence, could be considered grossly negligent.

Accepted Answer

A) True 
 B)False

Question 6

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Accepted Answer

A) True 
 B)False

Question 7

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Accepted Answer

A) True 
 B)False

Question 8

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third) of Torts , she may be liable to the client and

Accepted Answer

A)  any third party.
B)  no third party.
C)  third parties who are foreseen users of the work.
D)  third parties who are reasonably foreseeable users of the work.E) A) and D)
F) All of the above

Question 9

"A reasonably competent general practitioner of ordinary skill, experience, and capacity" is the normal standard of performance expected of

Accepted Answer

A)  none of the choices.
B)  an accountant.
C)  an attorney.
D)  a client.E) A) and C)
F) A) and B)

Question 10

Regarding a professional, malpractice is

Accepted Answer

A)  competence.
B)  repetition.
C)  preparation.
D)  negligence.E) B) and C)
F) A) and D)

Question 11

An attorney's conduct is governed by rules of professional conduct established by the state in which he or she is licensed, and the Model Rules of Professional Conduct of

Accepted Answer

A)  the Securities and Exchange Commission.
B)  the American Bar Association.
C)  the American Law Institute.
D)  the International Professional Standards Board.E) A) and B)
F) A) and C)

Question 12

An accountant is least likely to be held liable for accounting fraud if he or she

Accepted Answer

A)  uncovers suspicious financial transactions but does not inform the client.
B)  fails to discover every impropriety in a client's books.
C)  reports fictitious revenues in a client's financial statement.
D)  conceals liabilities or debts, or artificially inflates assets, for a client.E) A) and D)
F) A) and C)

Question 13

Del, an accountant, prepares for Econo Inc. a financial statement that omits a material fact. The statement is included in Econo's registration statement filed with the Securities and Exchange Commission. Fran, who relies the statement, and Gib, who does not, each buy Econo stock. Under Section 11 of the Securities Act of 1933, Del may be liable to

Accepted Answer

A)  no one.
B)  Fran only.
C)  Fran and Gib.
D)  Gib only.E) A) and C)
F) C) and D)

Question 14

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

Accepted Answer

A)  the accountant, with the client having a right of access to the papers.
B)  the client, with the accountant having a right of access to the papers.
C)  the Public Company Accounting Oversight Board.
D)  no one-the papers should be destroyed immediately after use.E) None of the above
F) A) and B)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

An accountant is liable for any omission in a registration statement to a person who suffers a loss on the securities described in the statement.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  a felony punishable by a fine and imprisonment.
B)  no violation.
C)  a misdemeanor punishable only by a fine.
D)  a civil violation subject to a liability suit but not a crime.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

A)  scienter was lacking.
B)  compliance with all International Financial Reporting Standards.
C)  the accountant was not negligent.
D)  any negligence on the accountant's part was only contributory.E) All of the above
F) B) and C)

Question 19

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Accepted Answer

A)  did not owe a duty of care to any third party.
B)  is not responsible for his client's finances.
C)  finished his work before the loan and default.
D)  was not in privity with the bank.E) A) and C)
F) A) and D)

Question 20

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Accepted Answer

A)  misstatement of a material fact.
B)  intent to deceive.
C)  justifiable reliance.
D)  an injury.E) B) and C)
F) A) and C)

Exam 42: Professional Liability and Accountability

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

Correct Answer
verified

An attorney's conduct is governed by rules of professional conduct established by the state in which he or she is licensed, and the Model Rules of Professional Conduct of

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Correct Answer
verified

"A reasonably competent general practitioner of ordinary skill, experience, and capacity" is the normal standard of performance expected of

Correct Answer
verified

Regarding a professional, malpractice is

Correct Answer
verified

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third) of Torts , she may be liable to the client and

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou

Correct Answer
verified

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

Correct Answer
verified

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Correct Answer
verified

An accountant is least likely to be held liable for accounting fraud if he or she

Correct Answer
verified

An auditor who accepts a client's explanation regarding financial irregularities, despite contradictory evidence, could be considered grossly negligent.

Correct Answer
verified

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Correct Answer
verified

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

Correct Answer
verified

An accountant is liable for any omission in a registration statement to a person who suffers a loss on the securities described in the statement.

Correct Answer
verified

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Correct Answer
verified

Correct Answer
verified

Exam 42: Professional Liability and Accountability

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

Correct AnswerverifiedShow Answer

An attorney's conduct is governed by rules of professional conduct established by the state in which he or she is licensed, and the Model Rules of Professional Conduct of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Correct AnswerverifiedShow Answer

"A reasonably competent general practitioner of ordinary skill, experience, and capacity" is the normal standard of performance expected of

Correct AnswerverifiedShow Answer

Regarding a professional, malpractice is

Correct AnswerverifiedShow Answer

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third) of Torts , she may be liable to the client and

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Digital Systems Corporation files a suit against Ethan, its former accountant, alleging constructive fraud. Digital Systems need not prove

Correct AnswerverifiedShow Answer

An accountant is least likely to be held liable for accounting fraud if he or she

Correct AnswerverifiedShow Answer

An auditor who accepts a client's explanation regarding financial irregularities, despite contradictory evidence, could be considered grossly negligent.

Correct AnswerverifiedShow Answer

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An accountant is liable for any omission in a registration statement to a person who suffers a loss on the securities described in the statement.

Correct AnswerverifiedShow Answer

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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