Question 1

Which of the following involves accountant liability to third parties based upon privity or near privity?

Accepted Answer

A)   The Ultramares rule
B)   The Class test
C)   The Reliance Rule
D)   The Restatement test
E)   The Carroll RuleF) C) and D)
G) None of the above

Question 2

Which of the following was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms?

Accepted Answer

A)   The Public Accounting Firms Oversight Commission
B)   The Public Company Accounting Oversight Board
C)   The Securities Review Board
D)   The Auditing Analysis and Review Board
E)   The Certified Public Accountant CommissionF) B) and D)
G) A) and E)

Question 3

Which of the following is true regarding states that have adopted the reasonably foreseeable users test for accountant liability to third-parties?

Accepted Answer

A)   All states have adopted it.
B)   Three-quarters of the states have adopted it.
C)   Half the states have adopted it.
D)   Very few states have adopted it.
E)   All 50 states have rejected it although it is the proposed rule under the Restatement (Third)  of Torts.F) B) and D)
G) All of the above

Question 4

Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law.

Accepted Answer

A) True 
 B)False

Question 5

Over the last few years,plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Accepted Answer

A) True 
 B)False

Question 6

Andy,a newly licensed certified public accountant,performed an audit for ABC Corporation.Shortly after the audit,a number of company officials were indicted for fraud.Andy tells his boss,Shirley,that he is not concerned because he had no duty under GAAS or GAAP to detect fraud and that so long as those obligations were met,he had no duty to do more.He says that auditors are not expected to have perfect judgment.Set forth what the initials GAAS and GAAP represent.Additionally,discuss whether Andy is correct on the following issues,and why or why not:
1.His contention regarding compliance with GAAS and GAAP completely satisfying auditing obligations.
2.His contention regarding the obligation of auditors in relation to fraud.
3.His contention that auditors are not required to have perfect judgment.

Accepted Answer

GAAP stands for generally accepted accou...

Question 7

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 no duty to third parties.
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 a duty only to directors of the company who provide loans to the 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 except for financial institutions and also directors who provide loans to a company.F) None of the above
G) All of the above

Question 8

Which of the following established GAAP?

Accepted Answer

A)   The American Institute of Certified Public Accountants
B)   The American Institute of Auditors
C)   The Financial Accounting Standards Board
D)   The American Accounting and Auditing Standards Board
E)   The Federal Accounting Standards BoardF) C) and D)
G) B) and D)

Question 9

Which of the following is true regarding any affirmative defenses available under Section 20(a) of the Securities Exchange Act?

Accepted Answer

A)   There are no affirmative defenses available.
B)   Comparative negligence is an affirmative defense.
C)   Contributory negligence is an affirmative defense.
D)   An affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
E)   Comparative negligence and contributory negligence are affirmative defenses, and also an affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.F) A) and B)
G) B) and C)

Question 10

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance upon the fraudulent information.

Accepted Answer

A) True 
 B)False

Question 11

What are the various documents including,notes,calculations,and memorandums that Rhonda developed in her review of Greg's financial statements called?

Accepted Answer

A)   Working papers.
B)   Consultation papers.
C)   Computation papers.
D)   Analysis papers.
E)   Review papers.F) A) and C)
G) A) and E)

Question 12

Which of the following is true regarding states adhering to the privity or near privity rule for third party liability of accountants?

Accepted Answer

A)   All the states utilize it.
B)   All states except one utilize it.
C)   Three-quarters of the states utilize it.
D)   One-half of the states utilize it.
E)   Only a few states utilize it.F) None of the above
G) A) and D)

Question 13

Regarding liability for negligence to third parties,under the Restatement test,an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the defenses available to an accountant charged with negligence.

Accepted Answer

Defenses to an accountant charged with n...

Question 15

Which of the following is accurate regarding Greg's assertion that Rhonda violated the accountant-client privilege?

Accepted Answer

A)   Greg was correct since the accountant-client privilege exists in all states through common law.
B)   Greg was incorrect because there is no an accountant-client privilege in any state.
C)   Greg was correct because the accountant-client privilege is recognized by federal law.
D)   Greg was correct because the accountant-client privilege is recognized in all states through statutory law.
E)   More information is needed in order to know if Greg is correct because the accountant-client privilege is recognized in some states, but not in all states.F) B) and C)
G) D) and E)

Question 16

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding whether XYZ Bank can recover against Selena based upon the loan to Bob?

Accepted Answer

A)   XYZ Bank will not be able to recover because it was not in privity with Selena.
B)   XYZ Bank will not be able to recover because Selena did not know that Bob planned to get a loan from XYZ Bank.
C)   XYZ Bank will not be able to recover $100,000 from Selena because the transaction went from $10,000 to $100,000, increasing materially the audit risk.
D)   XYZ Bank will be able to recover from Selena because there was privity of contract.
E)   XYZ Bank will be able to recover from Selena only if they have been a client of hers in the past.F) A) and C)
G) A) and B)

Question 17

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

Question 18

Assuming that Rhonda discussed with Candace confidential communications that she had with Greg,which of the following is true regarding the ethical nature of that communication?

Accepted Answer

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

Question 19

What are the three primary types of liability assessed against accountants under common law?

Accepted Answer

A)   Negligence, breach of contract, and accounting misalignment
B)   Breach of contract, fraud, and accounting misalignment
C)   Fraud, negligence, and accounting misalignment
D)   Breach of contract, negligence, and innocent misrepresentation
E)   Negligence, breach of contract, and fraudF) A) and C)
G) B) and C)

Question 20

When can an accountant be held liable to his or her client for fraud?

Accepted Answer

An accountant is liable to his or her cl...

Exam 11: Liability of Accountants and Other Professionals

When can an accountant be held liable to his or her client for fraud?

Correct Answer
verified
An accountant is liable to his or her cl...
View Answer

Over the last few years,plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Correct Answer
verified

Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law.

Correct Answer
verified

Regarding liability for negligence to third parties,under the Restatement test,an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.

Correct Answer
verified

Which of the following established GAAP?

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 was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms?

Correct Answer
verified

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding whether XYZ Bank can recover against Selena based upon the loan to Bob?

Correct Answer
verified

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

Correct Answer
verified

What are the three primary types of liability assessed against accountants under common law?

Correct Answer
verified

What are the various documents including,notes,calculations,and memorandums that Rhonda developed in her review of Greg's financial statements called?

Correct Answer
verified

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance upon the fraudulent information.

Correct Answer
verified

Which of the following is true regarding states adhering to the privity or near privity rule for third party liability of accountants?

Correct Answer
verified

Correct Answer
verified
GAAP stands for generally accepted accou...
View Answer

Assuming that Rhonda discussed with Candace confidential communications that she had with Greg,which of the following is true regarding the ethical nature of that communication?

Correct Answer
verified

Discuss the defenses available to an accountant charged with negligence.

Correct Answer
verified
Defenses to an accountant charged with n...
View Answer

Which of the following is true regarding any affirmative defenses available under Section 20(a) of the Securities Exchange Act?

Correct Answer
verified

Which of the following is true regarding states that have adopted the reasonably foreseeable users test for accountant liability to third-parties?

Correct Answer
verified

Which of the following involves accountant liability to third parties based upon privity or near privity?

Correct Answer
verified

Which of the following is accurate regarding Greg's assertion that Rhonda violated the accountant-client privilege?

Correct Answer
verified

Exam 11: Liability of Accountants and Other Professionals

When can an accountant be held liable to his or her client for fraud?

Correct AnswerverifiedAn accountant is liable to his or her cl...View AnswerShow Answer

Over the last few years,plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Correct AnswerverifiedShow Answer

Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law.

Correct AnswerverifiedShow Answer

Regarding liability for negligence to third parties,under the Restatement test,an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.

Correct AnswerverifiedShow Answer

Which of the following established GAAP?

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 was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms?

Correct AnswerverifiedShow Answer

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding whether XYZ Bank can recover against Selena based upon the loan to Bob?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are the three primary types of liability assessed against accountants under common law?

Correct AnswerverifiedShow Answer

What are the various documents including,notes,calculations,and memorandums that Rhonda developed in her review of Greg's financial statements called?

Correct AnswerverifiedShow Answer

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance upon the fraudulent information.

Correct AnswerverifiedShow Answer

Which of the following is true regarding states adhering to the privity or near privity rule for third party liability of accountants?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedGAAP stands for generally accepted accou...View AnswerShow Answer

Assuming that Rhonda discussed with Candace confidential communications that she had with Greg,which of the following is true regarding the ethical nature of that communication?

Correct AnswerverifiedShow Answer

Discuss the defenses available to an accountant charged with negligence.

Correct AnswerverifiedDefenses to an accountant charged with n...View AnswerShow Answer

Which of the following is true regarding any affirmative defenses available under Section 20(a) of the Securities Exchange Act?

Correct AnswerverifiedShow Answer

Which of the following is true regarding states that have adopted the reasonably foreseeable users test for accountant liability to third-parties?

Correct AnswerverifiedShow Answer

Which of the following involves accountant liability to third parties based upon privity or near privity?

Correct AnswerverifiedShow Answer

Which of the following is accurate regarding Greg's assertion that Rhonda violated the accountant-client privilege?

Correct AnswerverifiedShow Answer

Correct Answer
verified
An accountant is liable to his or her cl...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
GAAP stands for generally accepted accou...
View Answer

Correct Answer
verified

Correct Answer
verified
Defenses to an accountant charged with n...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified