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Exam 33: Liability of Accountants and Other Professionals

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Question 31

True/False

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In most courts, accountants are subject to liability for negligence only to their clients.

A) True
B) False

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Question 32

Multiple Choice

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April is an accountant whose clients include Bistro Restaurants Inc. If April is negligent in her work for Bistro, most courts would hold her liable to Bistro and​

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) A) and B)
F) A) and C)

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Question 33

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Gift Basket Company's liabilities exceed its assets. Gift Basket hires Hill & Dale, an accounting firm, to prepare a balance sheet. Through Hill & Dale's negligent omissions, the sheet shows a net worth. Investment Bank relies on the balance sheet to make a loan to Gift Basket. When Gift Basket defaults, the bank files a suit against Hill & Dale. Under the Restatement (Third) of Torts, Hill & Dale is most likely​

Attorneys are required to find relevant law that is applicable to a case and can be discovered through a reasonable amount of research.

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

The Sarbanes-Oxley Act applies only to domestic public accounting firms that provide auditing services to "issuers."​

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Constructive fraud may be found when an accountant is grossly negligent in performing his or her duties.

Taylor is an accountant whose clients include Universal Metrics Corporation. Velma is Taylor's attorney. Working papers that Taylor develops when preparing financial reports for Universal Metrics are owned by​

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

Traditionally, a professional owed a duty only to those with whom the professional had a direct contractual relationship.

An accountant is not liable for an omission in a registration statement to a purchaser of securities if the omission had no causal connection to the purchaser's loss.

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely

An accountant is always liable for a misleading statement that affects the price of a security, even if the accountant acted in good faith.

Reliant Funds, 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 Funds must show that Saul​

Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states, working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by​

To obtain damages for fraud, an innocent party does notneed to have been injured.

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

Odette, an accountant, contracts to perform services for Percy. Odette acts in good faith and conforms to generally accepted accounting principles, but makes an incorrect judgment. Odette is most likely

Root & Branch is a Registered Public Accounting Firm. Root & Branch performs auditing services for Sales & Service Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Root & Branch can also perform​