Question 1

Under which of the following circumstances would the attorney-client privilege apply to an accountant?

Accepted Answer

A)  When the attorney refers the client to seek the accountant's advice about a legal matter.
B)  When only accounting service is sought.
C)  When an accountant meets privately with the client for the purpose of obtaining legal advice from the lawyer.
D)  When the accountant is also an attorney.
E)  When the client seeks the accountant's advice about a legal matter.F) C) and D)
G) B) and D)

Question 2

Andrew may be entitled to complete compensation minus the amount of damages caused by the breach if he performed on the contract.

Accepted Answer

A)  Substantially
B)  Materially
C)  Completely
D)  Adequately
E)  PartiallyF) A) and E)
G) B) and D)

Question 3

[Unaudited financial statements] ABC Company hires Abe,an accountant,to create financial statements.Abe creates the financial statements without using general accounting procedures and clearly marks the statements as "unaudited".
-Could Abe be liable for the contents of the financial statements?

Accepted Answer

A)  No,because accountants are not liable for the contents of unaudited financial statements.
B)  Yes because he was negligent.
C)  No,if he inserted a broad and general disclaimer on the financial statements
D)  Yes,because he did not follow GAAP.
E)  Yes,but only for the areas of the document that did not include GAAP.F) All of the above
G) A) and C)

Question 4

The role of accountants became a question of significant public interest after a significant amount of responsibility for the bankruptcy of ________ Corporation was placed on the firms that provided accounting services for the corporation.

Accepted Answer

A)  Acron
B)  Deltoid
C)  Enron
D)  Prolific
E)  SelinasF) A) and D)
G) A) and E)

Question 5

[BigCom Securities] A&Z and DCB,two large accounting firms,prepared registration statements for BigCom,a large,public company,and provided information on BigCom to the SEC.A&Z's statements contained several misrepresentations about BigCom's securities.Wallace,BigCom's Chairman of the Board of Directors,signed the statements prior to the SEC filing.As is the usual procedure,Wallace signed the statements but did not read them carefully.He heard there were some questionable issues about the quality of the statements,but he felt confident with the expertise of the large accounting firms.Subsequently,purchasers of BigCom claimed there were misrepresentations about BigCom's shares in the statements filed with the SEC,and sued A&Z,DCB,and Wallace.All three defendants deny liability.
-Would DCB likely be held liable for the misrepresentations in the statements filed with the SEC?

Accepted Answer

A)  Yes,unless DCB can prove the misrepresentation did not involve a material fact.
B)  No,because it was not a willful violation.
C)  Yes,based on a balancing test.
D)  No,because the misrepresentations were made by A&Z and an accounting firm cannot be held liable for something it did not do.
E)  Yes,unless DCB can prove it performed a due diligence inquiry.F) C) and E)
G) A) and E)

Question 6

Under Section 11 of the Securities Act of 1933,a plaintiff may only recover if it can be established that the plaintiff purchased securities in an initial public offering.

Accepted Answer

A) True 
 B)False

Question 7

[Carter's financials] Kayla works as an accountant.Rudy,an attorney,is working on a case for Carter,who is suing his business partner.Rudy does not have the time or the background to perform a complete analysis of Carter's financial statements,so Rudy asks Kayla to meet with Carter and assist Rudy with interpreting Carter's financial statements.Kayla meets with Carter,who provides a lengthy explanation of the financial statements and facts of the case.Afterwards,she prepares a memorandum for Rudy outlining her analysis of the financial issues of the case.Kayla runs into Carter at a baseball game several months later.Carter tells her that the stress is getting to him and he wants to move to Florida because he can no longer tolerate his business partner.A year later,at trial,Kayla is called as a witness by Carter's business partner to testify against Carter.Noaccountant-client privilege exists in Kayla's state,which is also where the trial takes place.
-If Kayla is called to testify at trial,what is her best argument against revealing information about Carter's financial statements?

Accepted Answer

A)  Although accountant-client privilege does not exist in her state,federal law recognizes it.
B)  Revealing the requested information would be malpractice.
C)  The financial statements are confidential working papers.
D)  The attorney-client privilege.
E)  She has an ethical duty to keep the information confidential.F) A) and B)
G) A) and C)

Question 8

Wallace was also charged under Section 15 of the Securities Act.He asserted an affirmative defense claiming he is not liable as he is not a "controlling person" under that statute.Is he correct?

Accepted Answer

A)  No,as chairman of the board of directors,he is a "controlling person"
B)  No,because members of a board of directors can only be considered "controlling persons" if they had responsibility for due diligence.
C)  Yes,if he did not have ultimate responsibility to conduct due diligence.
D)  Yes,because he is not an accountant or other financial expert.
E)  Yes,even though he was chairman of the board,he did not control the content of the registration statements.F) A) and E)
G) B) and C)

Question 9

Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information?

Accepted Answer

A)  A plaintiff must prove reliance on the registration statement.
B)  The plaintiff must establish reliance on the financial statement,privity with the accountant,and also that the securities were purchased in an initial public offering.
C)  A plaintiff must prove privity with the accountant at issue.
D)  The plaintiff does not have to prove reliance on the financial statement nor must the plaintiff prove contractual privity.
E)  The plaintiff must establish reliance and privity.F) A) and E)
G) B) and E)

Question 10

Assuming that Norah discussed with Gloria confidential communications that she had with Joel,which of the following is true regarding the ethical nature of that communication?

Accepted Answer

A)  Regardless of whether a state law existed providing an accountant-client privilege,federal statutory law deems such conduct unethical.
B)  Norah did not commit an ethical violation in disclosing information to Gloria unless there was a state law providing for an accountant-client privilege.
C)  Norah committed an ethical violation.
D)  Norah committed an ethical violation but only because Gloria was not yet married to Joel.
E)  Norah did not commit an ethical violation because negotiations regarding a prenuptial agreement were involved.F) D) and E)
G) B) and D)

Question 11

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Accepted Answer

A)  The Ultramares Rule
B)  The Restatement Test
C)  The Privity Rule
D)  The Near Privity Rule
E)  The Reasonably Foreseeable Users TestF) B) and D)
G) A) and E)

Question 12

Under most professional indemnity insurance policies,which of the following must be true in order for a claim to be covered?

Accepted Answer

A)  A policyholder must be insured at the time the claim arose or at the time the claim is filed.
B)  A policyholder must be insured at the time the claim arose,but does not need to be insured at the time the claim is filed.
C)  A policyholder must be insured at the time the claim is filed,but does not need to be insured at the time the claim arose.
D)  A policyholder need only show evidence of current payment of policy premiums.
E)  A policyholder must be insured at the time the claim arose and at the time the claim is filed.F) All of the above
G) C) and E)

Question 13

A[n] ________ action is an action against an accountant for failing to properly perform the job for which the accountant was hired.

Accepted Answer

A)  Malfeasance
B)  Malpractice
C)  Misjudgment
D)  Impropriety
E)  MisguidanceF) C) and E)
G) C) and D)

Question 14

Accountants may not be sued for malpractice because that action is only available in the medical community.

Accepted Answer

A) True 
 B)False

Question 15

At a minimum,the duty of care of the accountant entails compliance with which of the following?

Accepted Answer

A)  Generally acknowledged accounting principles only.
B)  Generally accepted accounting principles and generally accepted auditing standards.
C)  Generally accepted accounting principles only.
D)  Generally accepted auditing standards and generally acknowledged accounting principles.
E)  Generally acknowledged auditing standards only.F) A) and B)
G) B) and E)

Question 16

Which of the following is true about professional indemnity insurance?

Accepted Answer

A)  It provides coverage in the event that a professional is sued for failing to live up to his or her professional responsibilities.
B)  It does not cover malpractice claims.
C)  Professionals who might be subject to malpractice claims usually do not purchase professional indemnity insurance.
D)  It provides coverage in the event that a professional is sued for malpractice,but not for failing to live up to his or her professional responsibilities.
E)  Doctors,lawyers,and accountants may purchase this type of insurance,but not other professionals.F) D) and E)
G) A) and D)

Question 17

As set forth in the case in the text,Bily v.Arthur Young & Co. ,which of the following is true regarding auditor liability to third parties under the Restatement rule?

Accepted Answer

A)  An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes a duty only to directors of the company who provide loans to the company.
B)  An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose does undertake a duty to any foreseeable third party users.
C)  An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose undertakes a duty only to third parties who are financial institutions.
D)  An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties except for financial institutions and also directors who provide loans to a company.
E)  An auditor retained to conduct an annual audit and to furnish an opinion for no particular purpose generally undertakes no duty to third parties.F) None of the above
G) C) and D)

Question 18

Which of the following was the result at the Supreme Court level in Matrixx Initiatives,Inc. ,v.Siracusano,the case in the text in which the plaintiffs brought a class action alleging that the defendant violated securities laws by failing to release reports that its product,Zicam Cold Remedy,had been found to result in a loss of smell?

Accepted Answer

A)  That under the "total mix" standard,the plaintiffs failed to sufficient plead materiality in regard to the alleged failure to disclose and therefore would not be allowed to proceed.
B)  That although under the "total mix" standard,the plaintiffs pled materiality in regard to the alleged failure to disclose,the plaintiffs failed to sufficiently plead scienter and would therefore not be allowed to proceed.
C)  That under the "total mix" standard,the plaintiffs sufficient pled materiality in regard to the alleged failure to disclose,that plaintiffs sufficiently pled scienter;and that plaintiffs would be allowed to proceed.
D)  That the plaintiffs would be allowed to proceed because they sufficiently pled scienter and also presented statistically significant evidence that Zicam caused loss of smell.
E)  That the plaintiffs would not be allowed to proceed because they did not present statistically significant evidence that Zicam caused loss of smell.F) All of the above
G) D) and E)

Question 19

The use of cloud computing,where data and software are stored on servers owned and maintained by a third party,is standard practice and does not raise any ethical concerns.

Accepted Answer

A) True 
 B)False

Question 20

The accountant-client privilege means that the accountant has the privilege of demanding payment for accounting services.

Accepted Answer

A) True 
 B)False

Exam 11: Liability of Accountants and Other Professionals

[Unaudited financial statements] ABC Company hires Abe,an accountant,to create financial statements.Abe creates the financial statements without using general accounting procedures and clearly marks the statements as "unaudited". -Could Abe be liable for the contents of the financial statements?

Correct Answer
verified

Which of the following is true about professional indemnity insurance?

Correct Answer
verified

The role of accountants became a question of significant public interest after a significant amount of responsibility for the bankruptcy of ________ Corporation was placed on the firms that provided accounting services for the corporation.

Correct Answer
verified

Correct Answer
verified

As set forth in the case in the text,Bily v.Arthur Young & Co. ,which of the following is true regarding auditor liability to third parties under the Restatement rule?

Correct Answer
verified

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Correct Answer
verified

Correct Answer
verified

At a minimum,the duty of care of the accountant entails compliance with which of the following?

Correct Answer
verified

Andrew may be entitled to complete compensation minus the amount of damages caused by the breach if he performed on the contract.

Correct Answer
verified

Accountants may not be sued for malpractice because that action is only available in the medical community.

Correct Answer
verified

Wallace was also charged under Section 15 of the Securities Act.He asserted an affirmative defense claiming he is not liable as he is not a "controlling person" under that statute.Is he correct?

Correct Answer
verified

A[n] ________ action is an action against an accountant for failing to properly perform the job for which the accountant was hired.

Correct Answer
verified

Assuming that Norah discussed with Gloria confidential communications that she had with Joel,which of the following is true regarding the ethical nature of that communication?

Correct Answer
verified

Under Section 11 of the Securities Act of 1933,a plaintiff may only recover if it can be established that the plaintiff purchased securities in an initial public offering.

Correct Answer
verified

Under which of the following circumstances would the attorney-client privilege apply to an accountant?

Correct Answer
verified

The use of cloud computing,where data and software are stored on servers owned and maintained by a third party,is standard practice and does not raise any ethical concerns.

Correct Answer
verified

The accountant-client privilege means that the accountant has the privilege of demanding payment for accounting services.

Correct Answer
verified

Correct Answer
verified

Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information?

Correct Answer
verified

Under most professional indemnity insurance policies,which of the following must be true in order for a claim to be covered?

Correct Answer
verified

Exam 11: Liability of Accountants and Other Professionals

[Unaudited financial statements] ABC Company hires Abe,an accountant,to create financial statements.Abe creates the financial statements without using general accounting procedures and clearly marks the statements as "unaudited". -Could Abe be liable for the contents of the financial statements?

Correct AnswerverifiedShow Answer

Which of the following is true about professional indemnity insurance?

Correct AnswerverifiedShow Answer

The role of accountants became a question of significant public interest after a significant amount of responsibility for the bankruptcy of ________ Corporation was placed on the firms that provided accounting services for the corporation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

As set forth in the case in the text,Bily v.Arthur Young & Co. ,which of the following is true regarding auditor liability to third parties under the Restatement rule?

Correct AnswerverifiedShow Answer

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At a minimum,the duty of care of the accountant entails compliance with which of the following?

Correct AnswerverifiedShow Answer

Andrew may be entitled to complete compensation minus the amount of damages caused by the breach if he performed on the contract.

Correct AnswerverifiedShow Answer

Accountants may not be sued for malpractice because that action is only available in the medical community.

Correct AnswerverifiedShow Answer

Wallace was also charged under Section 15 of the Securities Act.He asserted an affirmative defense claiming he is not liable as he is not a "controlling person" under that statute.Is he correct?

Correct AnswerverifiedShow Answer

A[n] ________ action is an action against an accountant for failing to properly perform the job for which the accountant was hired.

Correct AnswerverifiedShow Answer

Assuming that Norah discussed with Gloria confidential communications that she had with Joel,which of the following is true regarding the ethical nature of that communication?

Correct AnswerverifiedShow Answer

Under Section 11 of the Securities Act of 1933,a plaintiff may only recover if it can be established that the plaintiff purchased securities in an initial public offering.

Correct AnswerverifiedShow Answer

Under which of the following circumstances would the attorney-client privilege apply to an accountant?

Correct AnswerverifiedShow Answer

The use of cloud computing,where data and software are stored on servers owned and maintained by a third party,is standard practice and does not raise any ethical concerns.

Correct AnswerverifiedShow Answer

The accountant-client privilege means that the accountant has the privilege of demanding payment for accounting services.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information?

Correct AnswerverifiedShow Answer

Under most professional indemnity insurance policies,which of the following must be true in order for a claim to be covered?

Correct AnswerverifiedShow Answer

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