Deck 23

Question 1

Ultramares limits the accountant’s liability for negligence to:

Answer 1

(i) parties in privity and (ii) intended third party beneficiaries; parties who are merely “foreseen” cannot recover.

Question 2

Scienter

Answer 2

Knew the statement was wrong or recklessly disregarded the truth (intent to deceive)

Question 3

Under rule 10b-5, a purchaser must prove:

Answer 3

Scienter (intent to deceive or gross negligence, which is the reckless disregard for the truth); plaintiff relied on the misstatements; and LAM

Question 4

Under section 11, what must be proven?

Answer 4

The plaintiff acquired the security, there was a material misstatement in the financial statements, and the plaintiff suffered a loss (do not have to prove reliance or fraud)

Question 5

Negligence has 4 elements:

Answer 5

duty of care, breach (which is a lack of due care), causality of injury, and damages

Question 6

5 elements of fraud:

Answer 6

1) misrepresentation of material fact, 2) intent to deceive, 3) actual and justifiable reliance on the misrepresentation, 4) and intent to induce that reliance, and 5) damages

Question 7

CPA legal liability can arise from 3 things:

Answer 7

1) breach of contract, 2) tort (negligence, fraud, or constructive fraud), or 3) violation of a statute

Question 8

Ordinary Negligence

Answer 8

Failure to exercise reasonable care

Question 9

Elements of actual fraud (MAIDS)

Answer 9

Misrepresentation of material fact; intent to deceive; actual reliance; induce plaintiff; and damages

Question 10

Elements of constructive fraud

Answer 10

The defendant acts recklessly (gross negligence)

Question 11

When is privity not a defense?

Answer 11

Not a defense to fraud (it is a defense for negligence)

Question 12

Best defense for fraud:

Answer 12

lack of scienter/good faith

Question 13

Best defense for negligence:

Answer 13

Due diligence

Question 14

Best defense for breach of contract:

Answer 14

The client hindered my performance

Question 15

What do you have to prove under section 11? “LAM”

Answer 15

suffered a Loss, Acquired the stock, and Material misrepresentation

Question 16

Rule 10b-5 relates to:

Answer 16

Fraud

Question 17

The method used to depreciate partnership property is an election made by:

Answer 17

The partnership and may be any method approved by the IRS

Question 18

The standard deduction for a trust or an estate in the fiduciary income tax return is:

Answer 18

$0

Question 19

Does the collection of life insurance proceeds have an effect on taxable income?

Answer 19

No

Question 20

How do installment contracts effect taxable income and E&P?

Answer 20

Increase taxable income by the GP%; increase E&P by the entire gross profit