Professional & Legal Responsibilities

Question 1

A purchaser of securities may recover losses from the CPA firm that failed to discover the omission of a fact material to the statements under the

Answer 1

Securities Act of 1933

Question 2

Hugh, CPA, has developed an opinion for which tax avoidance is a significant purpose that is marketed to potential investors. According to Treasury Department Circular 230

Answer 2

This opinion is considered a covered opinion.

Question 3

For regulations regarding practice as an accountant before the Internal Revenue Service, a CPA should look to

Answer 3

Treasury Department Circular 230

Question 4

A suit for damages based on Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 requires proof

Answer 4

(1) that plaintiff suffered damages, (2) there was a material misstatement or omission in information released by the firm, (3) that the plaintiff relied on financial information, and (4) existence of scienter. Thus, proving that Davis did not rely on the financial statement or Form 10-K will be the CPA’s best defense.

Question 5

The Private Securities Litigation Reform Act amends

Answer 5

both the Federal Securities Act of 1933 and the Federal Securities Act of 1934.

Question 6

If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who were unknown to the CPA based on

Answer 6

gross negligence

Question 7

a preparer of a tax return would not incur penalties under the Internal Revenue Code where

Answer 7

the taxpayer reduces his/her liability by justifiably claiming a deduction for a substantial loss (e.g., a loss resulting from an accidental fire).