Lecture 5 Flashcards
What type of duty is owed by a professional under a contractual agreement?
a) Fiduciary duty
b) Duty of care in tort
c) Contractual duty
d) Ethical duty
c) Contractual duty
Which of the following is NOT a duty of care owed by a professional?
a) Duty to act honestly
b) Duty to maintain confidentiality
c) Duty to disclose profits
d) Duty to perform services with competence
✅ Answer: c) Duty to disclose profits
Under what condition is a duty of care owed to a non-client?
a) If there exists a “special relationship”
b) If the professional has worked for the non-client before
c) If the non-client has a financial interest
d) If the professional voluntarily assists the non-client
✅ Answer: a) If there exists a “special relationship”
What was the primary reason Hodgkinson sued Simms?
a) Simms failed to register his investments
b) Simms misrepresented investment profits
c) Simms had a conflict of interest and failed to disclose it
d) Simms acted as a real estate developer
✅ Answer: c) Simms had a conflict of interest and failed to disclose it
A fiduciary duty arises when there is:
a) A strong contractual agreement
b) An unequal balance of power and reliance on trust
c) A professional certification requirement
d) A written business agreement
✅ Answer: b) An unequal balance of power and reliance on trust
Which of the following is an example of a fiduciary relationship?
a) Employer-employee
b) Accountant-client
c) Landlord-tenant
d) Retailer-customer
✅ Answer: b) Accountant-client
Which fiduciary duty prevents professionals from using client information for personal gain?
a) No Conflict Rule
b) No Profit Rule
c) Duty of Care
d) Duty of Fair Dealing
✅ Answer: b) No Profit Rule
Which of the following best describes a Limited Liability Partnership (LLP)?
a) Partners are liable for each other’s negligence
b) Partners are only liable for their own negligence or those they supervise
c) Partners cannot be sued for professional misconduct
d) Partners do not have any fiduciary duty
✅ Answer: b) Partners are only liable for their own negligence or those they supervise
In Barrington v ICAO, what issue was central to the case?
a) Fraud in corporate financial statements
b) Failure to follow GAAP and GAAS standards
c) Breach of fiduciary duty
d) Misuse of client funds
✅ Answer: b) Failure to follow GAAP and GAAS standards
What is the role of the ICAO’s Professional Conduct Committee?
a) To oversee mergers and acquisitions
b) To investigate and discipline accountants for professional misconduct
c) To provide financial advice to firms
d) To regulate tax laws in Canada
✅ Answer: b) To investigate and discipline accountants for professional misconduct
(Difficult) Which legal principle was emphasized in Hodgkinson v Simms (1994)?
a) Accountants have a duty to maximize client profits
b) Fiduciary duty arises when trust and reliance are present
c) Clients are responsible for investigating conflicts of interest
d) Real estate investments are inherently risky
✅ Answer: b) Fiduciary duty arises when trust and reliance are present
(Difficult) If Simms had disclosed his conflict of interest but still advised Hodgkinson to invest, what duty would still apply?
a) Duty of Loyalty
b) Duty of Confidentiality
c) Duty of Care
d) Duty to Act in Good Faith
✅ Answer: c) Duty of Care
(Difficult) Which of the following was a key reason the ICAO Court of Appeal reinstated the original penalties in Barrington v ICAO?
✅ Answer: a) To protect the public trust in financial reporting
(Difficult) What key factor determines whether a professional owes a fiduciary duty?
a) The presence of a written agreement
b) The client’s financial loss
c) The level of trust and reliance on the professional
d) The industry standards followed by the professional
✅ Answer: c) The level of trust and reliance on the professional
(Difficult) What was a major reason Hodgkinson did not question Simms’ advice?
a) Simms had provided tax advice to other investors
b) Simms appeared independent and knowledgeable
c) The real estate market was strong at the time
d) Simms showed Hodgkinson a contract guaranteeing returns
✅ Answer: b) Simms appeared independent and knowledgeable
(Difficult) Which of the following fiduciary duties did Simms breach?
a) No Conflict Rule
b) No Profit Rule
c) Both a and b
d) None, since Hodgkinson agreed to the investments
✅ Answer: c) Both a and b
(Difficult) If the BC real estate market had NOT collapsed, would Simms still have been in breach of fiduciary duty?
a) No, because Hodgkinson would have made money
b) Yes, because the breach is about trust, not financial loss
c) No, because professionals are not responsible for market risk
d) Yes, because Simms was still negligent
✅ Answer: b) Yes, because the breach is about trust, not financial loss
Difficult) What penalty did the ICAO NOT impose on Barrington and his team?
a) Fines
b) Revocation of their accounting designations
c) Responsibility for legal costs
d) Reprimands
✅ Answer: b) Revocation of their accounting designations
(Difficult) Why is a professional corporation (PC) different from a general corporation?
a) It can issue shares to the public
b) It must be owned by members of a specific profession
c) It has no fiduciary responsibilities
d) It does not require professional licensing
✅ Answer: b) It must be owned by members of a specific profession
(Difficult) If a lawyer represents a former client’s opponent in a lawsuit, what issue arises?
a) Conflict of interest
b) Negligence
c) Breach of contract
d) Unfair competition
✅ Answer: a) Conflict of interest
(Difficult) What would be the primary legal consequence if Simms had disclosed his conflict but still received commissions from developers?
a) No legal consequence since the client was informed
b) Potential breach of fiduciary duty if full disclosure was not clear and explicit
c) Only an ethical violation with no legal impact
d) The client would be responsible for their financial losses
✅ Answer: b) Potential breach of fiduciary duty if full disclosure was not clear and explicit
(Difficult) Why did the Court of Appeal reinstate the full disciplinary penalties against Barrington and his team?
a) To ensure the credibility of the accounting profession
b) To compensate shareholders who suffered losses
c) To align Canadian regulations with international standards
d) Because the Divisional Court misinterpreted the law
✅ Answer: a) To ensure the credibility of the accounting profession
(Difficult) If Jasmine had signed a waiver allowing Rodney Strang to represent her opponent, would there still be a conflict of interest?
a) No, because informed consent removes conflicts
b) Yes, if confidential information from the prior engagement is relevant
c) No, because a lawyer can act for both parties if they choose
d) Yes, because waivers do not apply in litigation cases
✅ Answer: b) Yes, if confidential information from the prior engagement is relevant
(Difficult) A fiduciary relationship is MOST likely to be found in which of the following scenarios?
a) A bank providing a loan to a borrower
b) A financial advisor selecting investments for a client
c) A grocery store selling a product to a customer
d) A landlord renting an apartment to a tenant
✅ Answer: b) A financial advisor selecting investments for a client
