Chap 5 civil liability under the federal securities laws

Question 1

The Securities Act of 1933—Deals with ?

Answer 1

reporting requirements for the issuance of new securities

Question 2

Sarbanes-Oxley Act of 2002 increases what ? how?

Answer 2

the responsibilities of public companies and their auditors. requires CEO and CFO to certify annual and quarterly FSs filed with the SEC, management must report its assessment of the effectivness of internal control over financial reporting, and for accelerated filers, that auditors express an opinion on the effectiveness of internal control

Question 3

T/F The PCAOB has the authority to sanction registered CPA firms for any violations of the Sarbanes-Oxley Act of 2002

Answer 3

T

Question 4

Foreign Corrupt Practices Act of 1977?

Answer 4

Act makes it illegal to offer a bribe to a foreign official for the purpose of exerting influence or retaining business.

Question 5

The Securities Exchange Act of 1934—Deals with

Answer 5

audited financial statements issued to the public in annual reports submitted to the SEC as part of the annual form 10K reports

Question 6

SEC and PCAOB Sanctions—The SEC Rules of Practice and the PCAOB Rules of the Board permit them to deny a CPA from being associated with financial statements for what 2 reasons?

Answer 6

1. lack of qualifications 2. having engaged in unethical behavior.

Question 7

Foreign Corrupt Practices Act of 1977 also requires SEC companies to do what 2 things?

Answer 7

1. have reasonably complete and accurate records 2. have adequate system of internal control.

Question 8

Act makes it illegal to offer a bribe to a foreign official for the purpose of exerting influence or retaining business.

Answer 8

Foreign Corrupt Practices Act of 1977

Question 9

The principal focus on CPA liability litigation under the 1934 act is Rule 10b-5. this is known as the what ? what does it involve?

Answer 9

antifraud provision of the law which prohibits any fruadulent activities invovlving the purchase or sale of any security.

Question 10

what are 3 factores that make federal courts attractive to litigants?

Answer 10

1. availablity of class action litigation 2. ability to obtain significatn damages 3. several sections of securities laws imnpose strict liability standards on CPAs and the courts are often likely to favor plaintiffs when there are strict standards

Question 11

what is required for a CPA to be held liable under Rule 10b-5.

Answer 11

scienter- knowledge and intent to deceive

Question 12

accountants are held liable under section 10 and rule 10b-5 of 1934 act when?

Answer 12

this if they intentionally or reclelssly misrepresent information intended for 3rd party use (invovlving the purchase or sale of any security. )

Question 13

the escott et al v varchris construction case under 1933 act CPA firm held liable for lack of due diligence when perfroming its review of events occurring after B/S date. whate 2 noteworthy consequences came about because of this?

Answer 13

1. auditing standards changed to require greater emphasis on procedures that the auditor must perform for events subsequent to the B/S date 2. greater emphasis placed on importance of audit staff understanding clients business and industry

Question 14

In the securities act of 1933, the auditor is repsonible for making sure the FSs are fairly stated beyond the date of issuance, up to the date of what?

Answer 14

the date the registration statement becomes effective

Question 15

The Securities Act of 1933 is the only common or statutory law where the burden of proof is on who?

Answer 15

the defendant

Question 16

the greatest growth in CPA liability litigation has been under what?

Answer 16

the federal securities laws

Question 17

what are 3 key rights of third parties and auditors in section 11 of the a1933 act?

Answer 17

1. any third party who purchased securities described in the registration statement may sue the auditor for material misstatements or omissions in auditied FSs incluided in the registration statement 2. 3rd party users dont have the burden of proof that they relied on the FS or that the audirot was negligent or fraudulent in doing the audit. users must only proved that the audited FSs contained a maqterial misrepresentation or omission 3. the auditor has the burden of demonstrating as a defense that an adequate audit was conducted or all or a portion of the plaintifs loss was casued by factors other than misleadeing FSs

Question 18

The only parties who can recover from auditors under the 1933 Act are who?

Answer 18

the original purchasers of the securities