Gleim 2 Flashcards
For a CPA to be liable for common law negligence, the customer must prove that the CPA was?
Failed to exercise due care
NOT was grossly negligent
NOT knew of the irregularities
CPA best defense is that the tax returns were immaterial
CPA who failed to follow GAAS standards in auditing a FS for Long Corp, a nonpublic company. Took several tax return positions that were not likely to be sustained on the merits because they were not supported by substantial authority. Long told CPA they were using FS to apply for several loans. A Bank gives the loan, and LONG CORP defaults. If Bank sues CPA, CPA will what?
Win because CPA and the Bank were not in privity of the contract.
Lack of privity is still a defense in some states. Ultramares case.
However, most courts now extend a CPA’s liability to anyone in a class of foreseen (but not necessarily individually identified) thirds parties who the CPA knows will use the information.
What would support a finding of common law CONSTRUCTIVE FRAUD on the part of a CPA who prepared a tax return?
Gross negligence - the scienter requirement is met by proof of gross negligence (reckless disregard for the truth)
NOT Scienter - is a prerequisite to liability for fraud
What is CPA best defense against non statutory fraud based on false information contained in a tax return prepared by CPA?
The false information is IMMATERIAL
If a bank commences an action for COMMON LAW FRAUD against a CPA, the bank must prove, in addition to other elements, that it ?
Justifiably relied on the financial statements
What would support a finding of CONSTRUCTIVE common law fraud on part of a CPA?
Reckless Disregard
misrepresentation of material fact
reasonable reliance by the injured party
injury
NOT intent to deceive - this is a necessary element of ACTUAL FRAUD
Independent contractor rules
CPA must consult the client and obtain the client’s permission when delegating responsibility for the engagement
What elements must a client prove to hold a CPA liable for common law negligence
Breach of the accountant’s duty of care and loss
Primary benefit test
Under the primary benefit test, the accountant must have been aware that he was hired to produce a work product to be used and relied upon by a particular third party.
Reasonably foreseeable third parties (2)
Corporate shareholders
Corporate bondholders
CPA partnership generally provide its working papers related to its tax practice without either the client’s consent or a lawful subpoena?
NO TO FASB
NO TO IRS
An accountant engaged in tax practice before the IRS has a confidentiality privilege regarding communications with a client. this privilege applies only to ?
Only to advice on legal issues
NOT in state and federal courts
NOT in criminal tax matters
