Question 1

A professional who is sanctioned by a court for fraudulent conduct cannot also be penalized by a state board of professional ethics.

Accepted Answer

A) True 
 B)False

Question 2

An attorney's commission of a crime constitutes professional misconduct even absent proof that it reflects adversely on the person's fitness as a lawyer.

Accepted Answer

A) True 
 B)False

Question 3

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Accepted Answer

A) True 
 B)False

Question 4

Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

Accepted Answer

A)   actual fraud.
B)   constructive fraud.
C)   destructive fraud.
D)   virtual fraud.E) B) and C)
F) All of the above

Question 5

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third)  of Torts, she may be liable to the client and

Accepted Answer

A)   any third party.
B)   no third party.
C)   third parties who are foreseen users of the work.
D)   third parties who are reasonably foreseeable users of the work.E) A) and C)
F) A) and D)

Question 6

Manufacturing Inc. hires Neri, an accountant, to maintain the company's financial records. Neri does not act negligently or fail to perform any duty but fails to discover that Ollie, the firm's chief finance officer, is embezzling funds from the firm. With respect to the corporation's losses, the accountant is

Accepted Answer

A)   not liable.
B)   liable for the entire amount.
C)   liable only for the amount that occurred after the accountant was hired.
D)   liable only for the amount that cannot be recovered from the embezzler.E) A) and D)
F) None of the above

Question 7

Galen prepares a financial statement for Hobby Inc. before a public offering of its stock. The Securities and Exchange Commission orders a revision of the statement. During the subsequent delay of the offering, the stock price drops. Hobby files a suit against Galen for negligence. Galen's best defense is

Accepted Answer

A)   even if the accountant was negligent, this was not the proximate cause of the drop in the stock price.
B)   the firm suffered no injury.
C)   the accountant did not breach any duty of care that it owed to the firm.
D)   the accountant owed no duty of care to the firm.E) All of the above
F) B) and C)

Question 8

It is a felony for anyone-not just accountants-to willfully make false statements in a tax return or to willfully assist others in preparing a false return.

Accepted Answer

A) True 
 B)False

Question 9

Norm is an accountant. With respect to an allegation of negligence by Online Retail Inc., one of Norm's clients, Norm's violation of generally accepted accounting principles and generally accepted auditing standards

Accepted Answer

A)   does not indicate that Norm was negligent.
B)   is prima facie evidence that Norman was negligent.
C)   precludes Norm from raising any defense against a negligence claim.
D)   relieves Norm of any legal liability but not professional ethics sanctions.E) C) and D)
F) A) and C)

Question 10

An accountant should destroy working papers on the completion of an audit to avoid the possibility of having to provide evidence in a suit in which the accountant's competence is challenged.

Accepted Answer

A) True 
 B)False

Question 11

Cliff is an attorney whose clients include Data Inc. Unless Data has violated securities law, the contents of Cliff's file on the firm may be disclosed to a third party

Accepted Answer

A)   under no circumstances.
B)   only under a court order (with or without Data's consent) .
C)   only with Data's consent.
D)   at Cliff's discretion.E) B) and C)
F) All of the above

Question 12

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

Accepted Answer

A)   liable for negligence.
B)   liable for breach of contract.
C)   liable for a violation of state professional ethical standards.
D)   not liable.E) None of the above
F) All of the above

Question 13

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Accepted Answer

A) True 
 B)False

Question 14

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

Accepted Answer

A) True 
 B)False

Question 15

To hold a professional liable for negligence, a plaintiff must show that a duty of care existed and it was breached-proof of an injury is not required.

Accepted Answer

A) True 
 B)False

Question 16

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Accepted Answer

A)   did not owe a duty of care to any third party.
B)   is not responsible for his client's finances.
C)   finished his work before the loan and default.
D)   was not in privity with the bank.E) A) and C)
F) C) and D)

Question 17

Marco is an accountant who prepares his clients' tax returns. Nell is not an accountant, but she also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on

Accepted Answer

A)   Marco and Nell.
B)   Marco only.
C)   Nell only.
D)   none of the choices.E) C) and D)
F) B) and D)

Question 18

Reed prepares federal corporate income tax returns for Shopping Mall 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

Accepted Answer

A)   negligent or willful misconduct.
B)   no misconduct.
C)   only negligent misconduct.
D)   only willful misconduct.E) None of the above
F) A) and B)

Question 19

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

Accepted Answer

A) True 
 B)False

Question 20

An auditor who agrees to examine a client's records for fraud and then fails to detect it is not liable because a normal audit is not intended to uncover fraud.

Accepted Answer

A) True 
 B)False

Exam 40: Liability of Accountants and Other Professionals

It is a felony for anyone-not just accountants-to willfully make false statements in a tax return or to willfully assist others in preparing a false return.

Correct Answer
verified

An attorney's commission of a crime constitutes professional misconduct even absent proof that it reflects adversely on the person's fitness as a lawyer.

Correct Answer
verified

Reed prepares federal corporate income tax returns for Shopping Mall 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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third) of Torts, she may be liable to the client and

Correct Answer
verified

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Correct Answer
verified

To hold a professional liable for negligence, a plaintiff must show that a duty of care existed and it was breached-proof of an injury is not required.

Correct Answer
verified

An accountant should destroy working papers on the completion of an audit to avoid the possibility of having to provide evidence in a suit in which the accountant's competence is challenged.

Correct Answer
verified

A professional who is sanctioned by a court for fraudulent conduct cannot also be penalized by a state board of professional ethics.

Correct Answer
verified

Norm is an accountant. With respect to an allegation of negligence by Online Retail Inc., one of Norm's clients, Norm's violation of generally accepted accounting principles and generally accepted auditing standards

Correct Answer
verified

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

Correct Answer
verified

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Correct Answer
verified

Marco is an accountant who prepares his clients' tax returns. Nell is not an accountant, but she also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on

Correct Answer
verified

Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

Correct Answer
verified

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Correct Answer
verified

An auditor who agrees to examine a client's records for fraud and then fails to detect it is not liable because a normal audit is not intended to uncover fraud.

Correct Answer
verified

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

Correct Answer
verified

Cliff is an attorney whose clients include Data Inc. Unless Data has violated securities law, the contents of Cliff's file on the firm may be disclosed to a third party

Correct Answer
verified

Correct Answer
verified

Exam 40: Liability of Accountants and Other Professionals

It is a felony for anyone-not just accountants-to willfully make false statements in a tax return or to willfully assist others in preparing a false return.

Correct AnswerverifiedShow Answer

An attorney's commission of a crime constitutes professional misconduct even absent proof that it reflects adversely on the person's fitness as a lawyer.

Correct AnswerverifiedShow Answer

Reed prepares federal corporate income tax returns for Shopping Mall 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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Enya is an attorney whose clients include Finance Company. If Enya is negligent in her work for Finance, under the Restatement (Third) of Torts, she may be liable to the client and

Correct AnswerverifiedShow Answer

Under rules of professional conduct that proscribe fraud, state authorities can discipline professionals for engaging in such misconduct.

Correct AnswerverifiedShow Answer

To hold a professional liable for negligence, a plaintiff must show that a duty of care existed and it was breached-proof of an injury is not required.

Correct AnswerverifiedShow Answer

An accountant should destroy working papers on the completion of an audit to avoid the possibility of having to provide evidence in a suit in which the accountant's competence is challenged.

Correct AnswerverifiedShow Answer

A professional who is sanctioned by a court for fraudulent conduct cannot also be penalized by a state board of professional ethics.

Correct AnswerverifiedShow Answer

Norm is an accountant. With respect to an allegation of negligence by Online Retail Inc., one of Norm's clients, Norm's violation of generally accepted accounting principles and generally accepted auditing standards

Correct AnswerverifiedShow Answer

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

Correct AnswerverifiedShow Answer

Carbon Company's liabilities exceed its assets. The firm hires Dobie, an accountant, to certify a balance sheet showing a positive net worth. Equity Bank relies on the balance sheet to make a loan to Carbon. The firm defaults. Under the Ultramares rule, Dobie is most likely not liable because he

Correct AnswerverifiedShow Answer

Marco is an accountant who prepares his clients' tax returns. Nell is not an accountant, but she also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on

Correct AnswerverifiedShow Answer

Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for

Correct AnswerverifiedShow Answer

Professionals are faced with a decreasing threat of liability as the public becomes more aware that professionals must deliver competent services.

Correct AnswerverifiedShow Answer

An auditor who agrees to examine a client's records for fraud and then fails to detect it is not liable because a normal audit is not intended to uncover fraud.

Correct AnswerverifiedShow Answer

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

Correct AnswerverifiedShow Answer

Cliff is an attorney whose clients include Data Inc. Unless Data has violated securities law, the contents of Cliff's file on the firm may be disclosed to a third party

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified