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Exam 11: Liability of Accountants and Other Professionals

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Question 31

True/False

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After an audit, the accountant is the legal owner of working papers.

A) True
B) False

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Question 32

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When an accountant is found liable for fraud, what type of damages may be assessed in addition to compensatory damages in order to punish the accountant?

A) Punishable
B) Punitive
C) Material
D) Nominal
E) Incidental

F) C) and D)
G) A) and C)

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Question 33

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

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

In reference to the case of Credit Alliance Corp. v. Arthur Anderson & Co., what did the court rule regarding the effort to hold the defendant accounting firm liable on a third-party reliance theory?

"Accountant Dissatisfaction." Paul agreed to perform accounting services for Teresa, and they entered into a contract setting forth the terms of their agreement. Teresa wanted Paul to review her financial information and her system of internal controls. Teresa became dissatisfied with Paul's work after he reported some irregularities in her financial statements. Paul, on the other hand, claimed that he had adequately performed his duties and that, at the most, any mistakes that he made were minimal. -The contract that Paul and Teresa entered into setting the scope of Paul's duties is referred to as a[n] ___________.

Which of the following is false regarding compliance with GAAP and GAAS?

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.

Discuss the defenses available to an accountant charged with negligence.

The reasonably foreseeable users test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and did, in fact, use and rely upon that work product for a proper business purpose.

Which of the following is false regarding the Private Securities Litigation Reform Act?

When a federal law is at issue, state protection of an accountant-client privilege does not apply.

"Prenuptial Agreement." Rhonda performed accounting services for Greg's used car business. She had a contract with Greg to the effect that she would audit his books and financial statements for his own use, not for the purpose of obtaining loans. In auditing Greg's business, she developed various notes, calculations, memorandums, and other papers. Candace, Greg's fiancé, approached Rhonda to inquire about Greg's business. Candace and Rhonda had been friends for many years. Rhonda allowed Candace to look at the various notes, calculations, and other papers resulting from her review of Greg's financial statements and other records. Candace told Rhonda that she really needed to investigate Greg because they were thinking of getting married, and she believed he had a legal obligation to disclose the information to her because of negotiations involving a prenuptial agreement. Rhonda agreed and proceeded to discuss Greg's finances with Candace revealing all the information that Greg had disclosed to her. Candace broke up with Greg telling him that after what she discovered from Rhonda, she was concerned that Greg could not support her in the way in which she wanted to become accustomed. Greg was very angry with Rhonda and told her that she was unethical and had violated the accountant-client privilege. -What are the various documents including, notes, calculations, and memorandums that Rhonda developed in her review of Greg's financial statements called?

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.

Which of the following was the result on appeal in the case in the text In re Century Aluminum Company Securities Litigation, the case in the text involving plaintiffs who purchased secondary-offering shares and who attempted to sue under Section 11 of the Securities Act of 1933 for misrepresentations allegedly released regarding the secondary offering?

Under which of the following are accountants civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires?

Which of the following is true regarding the use of working papers in negligence cases involving the accountant's work?

Which of the following does the Sarbanes-Oxley Act of 2002 require regarding working papers?

Which of the following must be shown in order to establish a violation of Section 20(a) of the Securities Exchange Act?

"Prenuptial Agreement." Rhonda performed accounting services for Greg's used car business. She had a contract with Greg to the effect that she would audit his books and financial statements for his own use, not for the purpose of obtaining loans. In auditing Greg's business, she developed various notes, calculations, memorandums, and other papers. Candace, Greg's fiancé, approached Rhonda to inquire about Greg's business. Candace and Rhonda had been friends for many years. Rhonda allowed Candace to look at the various notes, calculations, and other papers resulting from her review of Greg's financial statements and other records. Candace told Rhonda that she really needed to investigate Greg because they were thinking of getting married, and she believed he had a legal obligation to disclose the information to her because of negotiations involving a prenuptial agreement. Rhonda agreed and proceeded to discuss Greg's finances with Candace revealing all the information that Greg had disclosed to her. Candace broke up with Greg telling him that after what she discovered from Rhonda, she was concerned that Greg could not support her in the way in which she wanted to become accustomed. Greg was very angry with Rhonda and told her that she was unethical and had violated the accountant-client privilege. -What is Rhonda's contract with Greg to do audit work for him called?