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Exam 40: Liability of Accountants and Other Professionals

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Question 1

Multiple Choice

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

A) intended to defraud Social Media,not Theo.
B) intended to profit on stock trades generally,not only Theo's.
C) is an otherwise competent accountant.
D) had no knowledge that her statement was false.

E) A) and B)
F) All of the above

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Question 2

True/False

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

A) True
B) False

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Question 3

Multiple Choice

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Kiana can be described as "a reasonably competent general practitioner of ordinary skill,experience,and capacity." This is the normal standard for judging the performance of

An accountant is not required to discover every impropriety,defalcation,and fraud in a client's books.

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

Copper Piping Company's liabilities exceed its assets,but its books falsely reflect a positive net worth. Copper hires Dart & Dash,an accounting firm,to prepare a balance sheet,which is certified to show a net worth. Equity Bank relies on the balance sheet to make a loan to Copper. Copper defaults on the loan. Under the Ultramares rule,Dart & Dash is most likely not liable because the firm

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.

Reliant Funds,Inc.,files a suit against Saul,an accountant,under the anti fraud 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

Odell,an accountant,prepares for Pronto Tacos Corporation a financial statement that omits a material fact. The financial statement is included in Pronto Tacos's registration statement,which Qiana reads. Qiana buys Pronto Tacos stock. Under Section 11 of the Securities Act of 1933,for Odell to be liable for the omission,Qiana must show that she

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

Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant,but he also prepares tax returns for clients. Under the Internal Revenue Code,liability for preparing a false return may be imposed on

Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc.,a client. Delaney may successfully defend against the claim if he can show that

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

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

Professionals are required to deliver services but the competency of the services is never an issue.

Lauren is an attorney. Like the conduct of all attorneys,Lauren's conduct is governed by rules of professional conduct established by the state in which she is licensed,and the Model Rules of Professional Conduct of

Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards

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

For a plaintiff to recover damages from an accountant under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,ordinary negligence is not enough.