Mod 23 Wrong Answers Flashcards
A client’s creditor is not in…
Privity of contract with the accountant
Lack of privity can be a viable defense against third parties in a…2
1 common law case of negligence
2 breach of contract
The accountant’s client is in privity of contract with…
The accountant due to their contractual agreement
A foreseeable third party instead of an actual foreseen third party by the CPA, the foreseeable third party…
Cannot recover in most states
The Ultramares decision limited liability to…
Parties in privity of contract with CPA
Under the Ultramares rule, the accountant is held liable…
Only to parties whose primary benefit the financial statements are intended
Under the Ultramares rule, the accountant is held liable only to parties whose primary benefit the financial statements are intended. This generally means…
Only the client or third party beneficiaries are in privity of contract
with the CPA
Many courts have more recently departed from the Ultramares decision to allow…
Foreseen third parties to recover from the CPA
Courts that adhere to the Ultramares rule do not…
Expand liability to foreseen parties
The securities act of 1933 requires that a plaintiff need only prove…2
1 That damages were incurred and
2 that there was a material misstatement or omission
The securities act of 1933 requires that a plaintiff need only prove that damages were incurred and that there was a material misstatement or omission in order to…
Establish a prima facie case against CPA
Plaintiff is not required to prove that he relied on financial info, or that there was negligence of fraud present for…
The Securities Act of 1933
The Securities Act of 1933 eliminates the necessity for…
Privity of contract
The CPA knew the third party that would rely on the financial statements. The financial statements contained misstatements. What 2 things must the third party establish to recover from the CPA?
1 show CPA was negligent in audit
2 establish that they relied on financial statements
Under the Securities Act of 1933, a CPA is liable to any third party purchaser of registered securities for…
Losses resulting from misstatements in financial statements
Included in registration statement
Under the Securities Act of 1933, a CPA is liable to any third party purchaser of registered securities for losses resulting from misstatements in financial statements included in registration statement. The plaintiff (purchaser) must establish…2
1 damages were incurred
2 misstatements were material misstatements of facts
Negligence need not be…
Proven under the 1933 act
To impose liability under section 11 of the Securities Act of 1933 for a misleading registration statement, the plaintiff must prove…2
1 damages were incurred and
2 material misstatement or omission was present in financial statements included in registration statement
The plaintiff generally is not required to prove defendants intent to deceive nor must the plaintiff prove reliance on the registration statement under the…
Section 11 of the Securities Act of 1933
To establish an accountant’s liability under the Securities Exchange Act of 1934, Section 10(b), rule 10b-5, the following 4 elements must be proven.
1 damages resulted to plaintiff in connection of purchase or sale
Of security in interstate commerce
2 material misstatement or omission existed in info released by firm
3 plaintiff justifiably relied on financial info
4 existence of Scienter
Because an investor can prove that damages were in hurried and that statements contained material misstatements, they would likely…
Prevail in a lawsuit under the Securities Act of 1933, Section 11
If the investor were unable to prove justifiable reliance on misstated financial information or existence of Scienter, thus recovery under…
The Securities Exchange Act of 1934, Section 10(b), rule 10b-5
Is unlikely
In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff has to prove that the defendant either…2
1 had knowledge of falsity in registration statement or
2 acted with reckless disregard for the truth
In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff must show that the transaction involved…
2) And must prove…
Interstate commerce
2) justifiable reliance
In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff must show that the transaction involved interstate commerce so that there…
Is a constitutional basis for using this federal law
The plaintiff need not prove that she or he was an intended user of false registration statement under…
Section 10(b) and Rule 10b-5 of the 1934 Act
Under Section 11 of the Securities Act of 1933, the CPA may be liable for…
Material misstatements or omissions in certified financial statements
Under Section 11 of the Securities Act of 1933, the CPA may be liable for material misstatements or omissions in certified financial statements. The CPA may escape liability by…
Showing due diligence
Showing due diligence is often prevent by…
Showing he followed GAAP
Under Section 11 of the Securities Act of 1933, there are not generally accepted fraud detection standards that the CPA can…
Use as a defense
In a civil suit under Section 10(b) and rule 10b-5, the damages are generally…
The difference between amount paid and sales price if sold
Recovery of full original public offering price is not used as damages under…
Section 10(b) and Rule 10b-5 1934
Any partners of a CPA partnership can have access…
To partnership’s working papers
To have access to accounting firm’s working papers, third parties need…2
1 to have client’s consent or
2 legal subpoena
To preserve confidentiality, a CPA (including CPA partnership) may not allow…
Transmission of info in working papers to other parties
A CPA firm may not allow transmission of information in the working papers to other parties. Exceptions are…2
1 consent of client or
2 production of an enforceable subpoena
There is no exception for the IRS or FASB for…
Transmission of information from working papers
In a jurisdiction having an accountant client privilege statute, the CPA generally may not turn over work papers…
Without the client’s permission
In a jurisdiction having an accountant client privilege statute, the CPA generally may not turn over work papers without the client’s permission. However it is allowable to do so for…2
1 use in quality review under AICPA authorization or
2 to be given to state CPA society quality control panel
Identify the law which may not result in criminal liability…and why
Common law
can only result in civil liability
A CPA will be liable to a tax client for damages resulting from the following 4 activities
1 failure to file client’s return on timely basis
2 gross negligence or fraudulent conduct resulting in client losses
3 erroneous advice or failure to advise client on certain tax elections
4 wrongful disclosure or use of confidential info
When a CPA refuses to sign a client’s request for filing an extension, they will…
Not be liable to tax client
