Mod 23 Wrong Answers

Question 0

A client’s creditor is not in…

Answer 0

Privity of contract with the accountant

Question 1

Lack of privity can be a viable defense against third parties in a…2

Answer 1

1 common law case of negligence

2 breach of contract

Question 2

The accountant’s client is in privity of contract with…

Answer 2

The accountant due to their contractual agreement

Question 3

A foreseeable third party instead of an actual foreseen third party by the CPA, the foreseeable third party…

Answer 3

Cannot recover in most states

Question 4

The Ultramares decision limited liability to…

Answer 4

Parties in privity of contract with CPA

Question 5

Under the Ultramares rule, the accountant is held liable…

Answer 5

Only to parties whose primary benefit the financial statements are intended

Question 6

Under the Ultramares rule, the accountant is held liable only to parties whose primary benefit the financial statements are intended. This generally means…

Answer 6

Only the client or third party beneficiaries are in privity of contract
with the CPA

Question 7

Many courts have more recently departed from the Ultramares decision to allow…

Answer 7

Foreseen third parties to recover from the CPA

Question 8

Courts that adhere to the Ultramares rule do not…

Answer 8

Expand liability to foreseen parties

Question 9

The securities act of 1933 requires that a plaintiff need only prove…2

Answer 9

1 That damages were incurred and

2 that there was a material misstatement or omission

Question 10

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…

Answer 10

Establish a prima facie case against CPA

Question 11

Plaintiff is not required to prove that he relied on financial info, or that there was negligence of fraud present for…

Answer 11

The Securities Act of 1933

Question 12

The Securities Act of 1933 eliminates the necessity for…

Answer 12

Privity of contract

Question 13

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?

Answer 13

1 show CPA was negligent in audit

2 establish that they relied on financial statements

Question 14

Under the Securities Act of 1933, a CPA is liable to any third party purchaser of registered securities for…

Answer 14

Losses resulting from misstatements in financial statements

Included in registration statement

Question 15

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

Answer 15

1 damages were incurred

2 misstatements were material misstatements of facts

Question 16

Negligence need not be…

Answer 16

Proven under the 1933 act

Question 17

To impose liability under section 11 of the Securities Act of 1933 for a misleading registration statement, the plaintiff must prove…2

Answer 17

1 damages were incurred and

2 material misstatement or omission was present in financial statements included in registration statement

Question 18

The plaintiff generally is not required to prove defendants intent to deceive nor must the plaintiff prove reliance on the registration statement under the…

Answer 18

Section 11 of the Securities Act of 1933

Question 19

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.

Answer 19

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

Question 20

Because an investor can prove that damages were in hurried and that statements contained material misstatements, they would likely…

Answer 20

Prevail in a lawsuit under the Securities Act of 1933, Section 11

Question 21

If the investor were unable to prove justifiable reliance on misstated financial information or existence of Scienter, thus recovery under…

Answer 21

The Securities Exchange Act of 1934, Section 10(b), rule 10b-5
Is unlikely

Question 22

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

Answer 22

1 had knowledge of falsity in registration statement or

2 acted with reckless disregard for the truth

Question 23

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…

Answer 23

Interstate commerce

2) justifiable reliance

Question 24

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…

Answer 24

Is a constitutional basis for using this federal law

Question 25

The plaintiff need not prove that she or he was an intended user of false registration statement under…

Answer 25

Section 10(b) and Rule 10b-5 of the 1934 Act

Question 26

Under Section 11 of the Securities Act of 1933, the CPA may be liable for…

Answer 26

Material misstatements or omissions in certified financial statements

Question 27

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…

Answer 27

Showing due diligence

Question 28

Showing due diligence is often prevent by…

Answer 28

Showing he followed GAAP

Question 29

Under Section 11 of the Securities Act of 1933, there are not generally accepted fraud detection standards that the CPA can…

Answer 29

Use as a defense

Question 30

In a civil suit under Section 10(b) and rule 10b-5, the damages are generally…

Answer 30

The difference between amount paid and sales price if sold

Question 31

Recovery of full original public offering price is not used as damages under…

Answer 31

Section 10(b) and Rule 10b-5 1934

Question 32

Any partners of a CPA partnership can have access…

Answer 32

To partnership’s working papers

Question 33

To have access to accounting firm’s working papers, third parties need…2

Answer 33

1 to have client’s consent or

2 legal subpoena

Question 34

To preserve confidentiality, a CPA (including CPA partnership) may not allow…

Answer 34

Transmission of info in working papers to other parties

Question 35

A CPA firm may not allow transmission of information in the working papers to other parties. Exceptions are…2

Answer 35

1 consent of client or

2 production of an enforceable subpoena

Question 36

There is no exception for the IRS or FASB for…

Answer 36

Transmission of information from working papers

Question 37

In a jurisdiction having an accountant client privilege statute, the CPA generally may not turn over work papers…

Answer 37

Without the client’s permission

Question 38

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

Answer 38

1 use in quality review under AICPA authorization or

2 to be given to state CPA society quality control panel

Question 39

Identify the law which may not result in criminal liability…and why

Answer 39

Common law

can only result in civil liability

Question 40

A CPA will be liable to a tax client for damages resulting from the following 4 activities

Answer 40

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

Question 41

When a CPA refuses to sign a client’s request for filing an extension, they will…

Answer 41

Not be liable to tax client