E-REG

Question 1

Scienter definition

Answer 1

the knowledge of or the intent to deceive, defraud, or manipulate

Question 2

Constructive fraud requires the following 4 elements:

Answer 2

(1) misrepresentation of a material fact,
(2) reckless disregard for the truth,
(3) reasonable reliance by the injured party, and
(4) injury

Question 3

In an action brought under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove the following:

Answer 3

(1) that plaintiff suffered damages,
(2) there was a material misstatement or omission in the financial information audited by the CPA,
(3) that the plaintiff relied on financial information, and
(4) existence of scienter.

Question 4

For a purchaser of stock to successfully sue under Section 11 of the Securities Act of 1933, What must the investor prove to possibly recover losses from the CPA firm that audited the financial statements contained in the registration statement?

Answer 4

(1) losses and
(2) the financial statements were misleading.
The burden of proof is then shifted to the CPA to prove due diligence.

Question 5

Proclivity definition

Answer 5

a tendency to choose or do something regularly; an inclination or predisposition toward a particular thing

Question 6

Preclude definition

Answer 6

prevent from happening; make impossible.

Question 7

Privity of contract definition

Answer 7

Legal doctrine that a contract confers rights and imposes liabilities only on its contracting parties. They, and not any third-party, can sue each other (or be sued) under the terms of the contracts.

Question 8

A purchaser of securities may recover losses from the CPA firm that failed to discover the omission of a fact material to the statements under the Securities Act of 1933. The statute of limitations for this civil action is:

Answer 8

1 year from the discovery of the omission and

3 years from the offering date.

Question 9

Joint and several liability definition

Answer 9

plaintiff may recover FULL value of the damages from any of the defendants regardless of their individual share of the liability…is most relevant in tort claims. The rule is often applied in negligence cases,

Question 10

Under the Private Securities Litigation Reform Act, the defendants have what type of liability?

Answer 10

Proportionate to their degree of fault for unknowing conduct. The Reform Act changes the rule on joint and several liability so that each defendant is liable for his/her proportionate degree of fault for unknowing conduct

Question 11

a third party (e.g., a stockholder) attempting to sue a CPA for fraud must prove 3 elements:

Answer 11

(1) that damages were incurred,
(2) there was a material misstatement or omission of a material fact in the financial statements, and
(3) there was justifiable reliance on the financial statements which led to the damages.

Question 12

Section II of the Securities Act of 1933 makes it unlawful for a registration statement to contain an untrue material fact or to omit a material fact. What represents a viable defense for the CPA?

Answer 12

(1) The false statement is immaterial in the overall context of the financial statements.
(2) the due diligence defense,
(3) proving that the plaintiff knew the F/S were incorrect when the investment was made, and
(4) proving the loss was caused by factors other than the misstatement or omission

Question 13

Penalties that may be imposed on preparers if they fail to fulfill the following requirements (unless failure is due to reasonable cause):

Answer 13

(1) Preparer must sign returns done for compensation.
(2) Preparer must provide a copy of the return or refund claim to the taxpayer no later than when the preparer presents a copy of the return to the taxpayer for signing.
(3) Returns and claims for refund must contain the SS # of preparer and identification # of preparer’s employer or partnership (if any).
(4) Preparer must either keep a list of those for whom returns were filed with specified information, or copies of the actual returns, for three years.
(5) Employers of return preparers must retain a listing of return preparers and place of employment for 3yrs.
(6) Preparer must not endorse or negotiate a refund check issued to a taxpayer.
(7) Preparer must not disclose information furnished in connection with the preparation of a tax return, unless for quality or peer review, or under an administrative order by a regulatory agency.

Question 14

Accountants should be familiar with Treasury Department Circular 230 because:

Answer 14

It provides regulations regarding practice before the IRS

Question 15

Securities Exchange Act of 1934:

Answer 15

regulates the trading of securities of issuer companies, including the information contained in periodic reports (e.g., Form 10-Ks).

Question 16

The Private Securities Litigation Reform Act amends:

Answer 16

both the Federal Securities Act of 1933 and

the Federal Securities Act of 1934.

Question 17

Auditors who audit financial statements under Federal Securities Exchange Act of 1934 are required to establish procedures to (Under the Private Securities Litigation Reform Act)

Answer 17

a. Detect material illegal acts
b. Identify material related-party transactions, and
c. Evaluate ability of firm to continue as going concern

Question 18

Surety definition

Answer 18

a person who takes responsibility for another’s performance of an undertaking, for example their appearing in court or the payment of a debt.
synonyms: guarantor, sponsor

Question 19

bona fide dispute definition

Answer 19

Latin for “good faith,” it signifies honesty, the “real thing” and, in the case of a party claiming title as “bona fide” purchaser or holder, it indicates innocence or lack of knowledge of any fact that would cast doubt on the right to hold title.

Question 20

liquidated debt vs. unliquidated debt

Answer 20

liquidated debt: still must pay the full original amount

unliquidated debt: can settle the debt for a lesser amount

Question 21

Unequivocal and unqualified definition

Answer 21

unambiguous; clear; having only one possible meaning or interpretation:
an unequivocal indication of assent; unequivocal proof.
2.absolute; unqualified; not subject to conditions or exceptions:

Question 22

Anticipatory repudiation definition

Answer 22

also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract

Question 23

Contemporaneous definition

Answer 23

Simultaneous, existing at the same time

Question 24

Parol evidence rule:

Answer 24

a principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document.

Question 25

Novation definition (in contract law and business law,)

Answer 25

is the act of either:

(a) replacing an obligation to perform with another obligation; or.
(b) adding an obligation to perform; or.
(c) replacing a party to an agreement with a new party.

Question 26

Release definition

Answer 26

a legal instrument that acts to terminate any legal liability between the releasor and the releasee(s), signed by the releasor. A release may also be made orally in some circumstances

Question 27

Rescission definition (contract law)

Answer 27

the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante).

Question 28

Revocation

Answer 28

the act of recall or annulment. It is the reversal of an act, the recalling of a grant or privilege, or the making void of some deed previously existing. A temporary revocation of a grant or privilege is called a suspension.

Question 29

A common law fraud action requires 4 proofs:

Answer 29

(1) a false statement of fact or misrepresentation by the defendant,
(2) knowledge of the false statement by the defendant, (3) reliance by the plaintiff, and
(4) a loss suffered by the plaintiff.

Question 30

Under the theory of strict liability, the plaintiff must establish the following:

Answer 30

(1) the seller was engaged in the business of selling the product,
(2) the product was defective,
(3) the defect was unreasonably dangerous to the plaintiff, and
(4) the defect caused injury to the plaintiff. If the plaintiff can prove these elements, then the seller will be liable regardless of whether the seller was negligent or at fault for the defect.

Question 31

Replevin Definition:

Answer 31

A legal action taken to reclaim goods which have been distrained. A legal action taken to reclaim goods which have been wrongfully taken, detained or distrained

Question 32

Without recourse:

Answer 32

disclaim any liability to the subsequent holder of a financial instrument. Thus, endorsing a check and adding “without recourse” to the signature means that the endorser takes no responsiblity if the check bounces for insufficient funds.

Question 33

Perfecting a security interest:

Answer 33

A means by which a secured party gaind priority to a debtor’s collateral over third parties

Question 34

An unfair preference (or “voidable preference”):

Answer 34

is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference or simply a preference

Question 35

an antecedent debt definition

Answer 35

is a prior debt to reimburse another. In terms of bankruptcy law, antecedent debt refers to a debtor’s prepetition obligation which existed before a debtor’s transfer of an interest in property.

Question 36

Exoneration:

Answer 36

the action of officially absolving someone from blame; vindication.
the release of someone from a duty or obligation

Question 37

Subrogation:

Answer 37

the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.

Question 38

Indemnification:

Answer 38

compensate (someone) for harm or loss. Reinbersment

Question 39

Fee simple:

Answer 39

a permanent and absolute tenure of an estate in land with freedom to dispose of it at will, especially in full fee simple absolute a freehold tenure, which is the main type of land ownership

Question 40

Easement:

Answer 40

a right to cross or otherwise use someone else’s land for a specified purpose

Question 41

Ultra Vires acts

Answer 41

Any act that lies beyond the authority of a corporation to perform. Ultra Vires acts fall outside the powers that are specifically listed in a corporate charter or state law. They can also be any action that is specifically prohibited by the corporate charter.