Legal duties and resps

Question 1

ultrameres

Answer 1

Ultramares limits the accountant’s liability for negligence to: (i) parties in privity
and (ii) intended third party beneficiaries; parties who are merely “foreseen” cannot recover.

Question 2

Under common law, which of the following statements most accurately reflects the liability of a CPA who
fraudulently gives an opinion on an audit of a client’s financial statements?

Answer 2

A CPA who commits fraud is liable to anyone who is injured by the fraud.

Question 3

gross negligence

Answer 3

Reckless departure from standards of due care constitutes gross negligence, which is also called constructive fraud. A CPA who commits constructive fraud is liable to all plaintiffs, not justthose with whom the CPA dealt or of whom the CPA knew.

Question 4

Negligence

Answer 4

Negligence connotes less of a departure from due care than does recklessness connote. If a CPA is merely negligent, liability is limited to clients and persons whom the CPA knewwould be relying on the CPA’s work.

Question 5

Negligence

Answer 5

. Negligence has 4 elements: duty of care, breach (which is lack of due care),causality and injury.

Question 6

CPA breach of contract

Answer 6

t. When a CPA breaches a contract for professional services, the client and any third
party beneficiary of the contract are entitled to compensatory money damages

Question 7

accountants working papers

Answer 7

Work papers belong to the accountant who prepares them, not the client. Thus, as
the owner of the workpapers, Spinner does not have to disclose them to the client, Lasco

Question 8

Negligence

Answer 8

Under the majority position an accountant is liable for negligence only to third
parties whom the accountant knows or should foresee will be relying on the accountant’s work.

Question 9

fraud

Answer 9

Constructive fraud does not require intent. Constructive fraud only requiresreckless disregard for truth or falsity. Actual fraud, on the other hand, requires intent in making a material
misstatement, upon which the plaintiff justifiably relies (and that the plaintiff suffers damages). We did
not have such intent here. Thus, Darleen can be liable only for constructive fraud.

Question 10

Negligence

Answer 10

A plaintiff must show four elements to make a case for negligence against a CPA.
The plaintiff must show that the defendant owed a duty of care to the plaintiff, the defendant breached
that duty by failing to act with due care, the breach caused the plaintiff’s injury, and damages.
Choices “A”, “C”, and “D” are incorrect, per the above rule.

Question 11

discloure of info exception

Answer 11

. The accountant is prohibited from showing the workpapers to anyone without the
client’s permission except in certain situations. One of those situations is to the accountant’s attorney in
defense of a lawsuit brought by a client.