Question 1

Under the ________,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)  Carroll rule
B)  Reliance rule
C)  Ultramares rule
D)  Class test
E)  Restatement testF) B) and E)
G) A) and E) E

Question 2

Luca,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.Luca tells his boss,Olivia,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 Luca 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 3

When an accountant is hired to perform a task,the contract the accountant enters into with a client is referred to as a[n] ________.

Accepted Answer

A)  Performance letter
B)  Engagement letter
C)  Accounting and auditing agreement
D)  Procurement letter
E)  Accounting contractF) A) and C)
G) B) and C)

Question 4

In negligence cases involving the accountant's work,which of the following is true regarding the use of working papers?

Accepted Answer

A)  Working papers may be used as evidence in negligence cases only if the accountant failed to provide the client with copies of them.
B)  Working papers cannot be used as evidence in negligence cases.
C)  Working papers can be used as evidence in negligence cases only if a bank is the plaintiff.
D)  Working papers can be used as evidence in negligence cases.
E)  Working papers can be used as evidence in negligence cases only if a non-corporate plaintiff is involved.F) A) and E)
G) C) and D)

Question 5

Javier claims that he should not be liable for negligence because Sami committed fraud.Is he correct?

Accepted Answer

A)  No,but only if he violated a statute.
B)  Yes,because he was not aware of Sami's conduct.
C)  No,because he failed to detect fraud that a normal audit would have uncovered.
D)  Yes.
E)  Yes,because Sami's conduct was not reasonably foreseeable.F) A) and C)
G) A) and E)

Question 6

State protection of an accountant-client privilege does not apply when a federal law is at issue.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  The Reliance Rule
B)  The Restatement test
C)  The Carroll Rule
D)  The Class test
E)  The Ultramares ruleF) A) and C)
G) A) and D)

Question 8

What is Norah's contract with Joel to do audit work for him called?

Accepted Answer

A)  Audit affirmation letter
B)  Absolute contract
C)  Retention contract
D)  Preview contract
E)  Engagement letterF) B) and E)
G) C) and D) E

Question 9

Which of the following would be available to Dominique,assuming that she can establish that Andrew failed to meet his contractual obligations?

Accepted Answer

A)  Reasonable and foreseeable damages related to the breach and damages for fraud which would be presumed.
B)  Only a recovery for the cost of obtaining a different accountant to perform breached contractual duties.
C)  Nothing unless the contact specifically provides for damages in the event of a breach.
D)  Reasonable and foreseeable damages related to the breach excluding the cost of another accountant to perform breached contractual duties.
E)  The cost of obtaining a different accountant to perform breached contractual duties and also any reasonable and foreseeable damages related to the breach.F) None of the above
G) All of the above

Question 10

The accountant is the legal owner of working papers after an audit.

Accepted Answer

A) True 
 B)False  True

Question 11

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)  Very few states have adopted it.
B)  All states have adopted it.
C)  Three-quarters of the states have adopted it.
D)  All 50 states have rejected it although it is the proposed rule under the Restatement Third) of Torts.
E)  Half the states have adopted it.F) B) and E)
G) None of the above

Question 12

What must a plaintiff show in order to establish a violation of Section 20a)of the Securities Exchange Act?

Accepted Answer

Under Section 20a),to establish liabilit...

Question 13

Does the attorney-client privilege apply to accountants?

Accepted Answer

A)  Yes,but only if the accountant is also an attorney.
B)  Yes,all communication between accountant and client is protected by the attorney-client privilege.
C)  No,because accountants have the accountant-client privilege.
D)  No,because attorneys do not need accountants in order to represent their client.
E)  Yes,if the communication between accountant and client is made in confidence for the purpose of obtaining legal advice from the attorney.F) C) and E)
G) B) and D)

Question 14

Does Javier's disclaimer in his opinion letter protect him from liability?

Accepted Answer

A)  Yes,as long as the disclaimer was part of the opinion letter.
B)  Yes,because a qualification will limit liability.
C)  No,because the disclaimer is broad and general.
D)  Yes,but only if he properly applied GAAP and GAAS.
E)  Yes,because a disclaimer protects an accountant from liability based on failure to detect fraud.F) D) and E)
G) A) and B)

Question 15

When an audit is complete,an accountant usually issues a[n] ________ letter stating his or her assessment of the company that was audited.

Accepted Answer

A)  Opinion
B)  Responsive
C)  Accounting
D)  Disclaimer
E)  AuditingF) B) and D)
G) C) and D)

Question 16

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 17

Which section of the Securities Act makes accountants civilly liable for misstatements and omissions of material facts made in the registration statements required by the SEC?

Accepted Answer

A)  Section 12 of the Securities Act of 1933
B)  Section 12 of the Securities Act of 1934
C)  Section 13 of the Securities Act of 1935
D)  Section 11 of the Securities Act of 1933
E)  Section 10 of the Securities Act of 1934F) A) and B)
G) B) and E)

Question 18

Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding the effort by Bank XYZ to recover against Amina based upon Maggie's default?

Accepted Answer

A)  The bank will be able to recover because it was in privity with Maggie,and Maggie was in privity with Amina.
B)  The bank will not be able to recover because it cannot establish reliance upon Amina's work.
C)  The bank will be able to recover because it was in privity with Amina.
D)  The bank will be able to recover because Amina was aware that her audit would be used to obtain a loan.
E)  The bank will not be able to recover because Amina and Maggie had specifically agreed that the audit would only be used to obtain a loan from Maggie's uncle.F) A) and B)
G) All of the above

Question 19

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Accepted Answer

A)  The Privity Test
B)  The Restatement Test
C)  The Ultramares Rule
D)  The Reasonably Foreseeable Users Test
E)  The Near Privity TestF) A) and B)
G) B) and E)

Question 20

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Accepted Answer

A)  Potential investors should have a route of recovery even if they could not be foreseen by accountants.
B)  The general public should have a route of recovery even if they could not be foreseen by the accountant.
C)  It is only fair to hold accountants liable if they are in privity with a plaintiff.
D)  The economy will benefit if investors recognize that they have sufficient rights of recovery.
E)  Much of what accountants do is prepare work for parties that are not their clients and therefore,it makes sense for accountants to owe a duty to intended receivers.F) C) and D)
G) B) and E)

Exam 11: Liability of Accountants and Other Professionals

Under the ________,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
E

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

When an accountant is hired to perform a task,the contract the accountant enters into with a client is referred to as a[n] ________.

Correct Answer
verified

In negligence cases involving the accountant's work,which of the following is true regarding the use of working papers?

Correct Answer
verified

Javier claims that he should not be liable for negligence because Sami committed fraud.Is he correct?

Correct Answer
verified

State protection of an accountant-client privilege does not apply when a federal law is at issue.

Correct Answer
verified

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

Correct Answer
verified

What is Norah's contract with Joel to do audit work for him called?

Correct Answer
verified
E

Which of the following would be available to Dominique,assuming that she can establish that Andrew failed to meet his contractual obligations?

Correct Answer
verified

The accountant is the legal owner of working papers after an audit.

Correct Answer
verified
True

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

What must a plaintiff show in order to establish a violation of Section 20a)of the Securities Exchange Act?

Correct Answer
verified
Under Section 20a),to establish liabilit...
View Answer

Does the attorney-client privilege apply to accountants?

Correct Answer
verified

Does Javier's disclaimer in his opinion letter protect him from liability?

Correct Answer
verified

When an audit is complete,an accountant usually issues a[n] ________ letter stating his or her assessment of the company that was audited.

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 section of the Securities Act makes accountants civilly liable for misstatements and omissions of material facts made in the registration statements required by the SEC?

Correct Answer
verified

Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding the effort by Bank XYZ to recover against Amina based upon Maggie's default?

Correct Answer
verified

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Correct Answer
verified

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Correct Answer
verified

Exam 11: Liability of Accountants and Other Professionals

Under the ________,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 AnswerverifiedE

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

When an accountant is hired to perform a task,the contract the accountant enters into with a client is referred to as a[n] ________.

Correct AnswerverifiedShow Answer

In negligence cases involving the accountant's work,which of the following is true regarding the use of working papers?

Correct AnswerverifiedShow Answer

Javier claims that he should not be liable for negligence because Sami committed fraud.Is he correct?

Correct AnswerverifiedShow Answer

State protection of an accountant-client privilege does not apply when a federal law is at issue.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is Norah's contract with Joel to do audit work for him called?

Correct AnswerverifiedE

Which of the following would be available to Dominique,assuming that she can establish that Andrew failed to meet his contractual obligations?

Correct AnswerverifiedShow Answer

The accountant is the legal owner of working papers after an audit.

Correct AnswerverifiedTrue

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

What must a plaintiff show in order to establish a violation of Section 20a)of the Securities Exchange Act?

Correct AnswerverifiedUnder Section 20a),to establish liabilit...View AnswerShow Answer

Does the attorney-client privilege apply to accountants?

Correct AnswerverifiedShow Answer

Does Javier's disclaimer in his opinion letter protect him from liability?

Correct AnswerverifiedShow Answer

When an audit is complete,an accountant usually issues a[n] ________ letter stating his or her assessment of the company that was audited.

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 section of the Securities Act makes accountants civilly liable for misstatements and omissions of material facts made in the registration statements required by the SEC?

Correct AnswerverifiedShow Answer

Under the Restatement Test,referenced in the text's discussion of the case Bily v.Arthur Young & Co. ,which of the following is true regarding the effort by Bank XYZ to recover against Amina based upon Maggie's default?

Correct AnswerverifiedShow Answer

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Correct AnswerverifiedShow Answer

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Correct AnswerverifiedShow Answer

Correct Answer
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E

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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True

Correct Answer
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Correct Answer
verified
Under Section 20a),to establish liabilit...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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