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CPA REG > R5 - Business Law (Nonethics) > Flashcards

R5 - Business Law (Nonethics) Flashcards

1
Q

If a CPA does not fulfill the terms of his engagement, the client can hold the CPA liable for ________.

A

Breach

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2
Q

Contract liability generally requires _______, so only a party to the contract can sue under a contract theory (client and named 3rd party).

A

Privity

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3
Q

If the CPA’s breach is material, is he entitled to payment for his services?

A

NO

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4
Q

What is a tort?

A

A wrongful act

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5
Q

What are three types of torts?

A
  • Negligence
  • Constructive fraud (aka gross negligence)
  • Fraud
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6
Q

Is failure to warn a client of known internal control weaknesses negligence?

A

YES

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7
Q

Is failure to properly supervise/review negligence?

A

YES

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8
Q

A CPA’s duty to act with reasonable care generally runs only to clients and who under the majority rule?

A

Any person or limited foreseeable class of persons (lenders or investors) whom the CPA knows will be relying on the CPA’s work

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9
Q

A minority of states follows the _______ decision, which limits the CPA liability more narrowly to persons in _____ of contract with the CPA (clients) and named third parties.

A
  • Ultramares

- Privity

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10
Q

Is privity a defense to fraud?

A

NO

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11
Q

What is the best defense for fraud?

A

Lack of scienter/good faith

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12
Q

What is the best defense for breach of contract?

A

Client hindered performance

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13
Q

What is the best defense for negligence?

A

Due diligence

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14
Q

Lack of reasonable care = ?

A

Ordinary negligence

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15
Q

Lack of even slight care = ?

A

Gross negligence or constructive fraud

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16
Q

Actual fraud = ?

A

Actual intent to deceive

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17
Q

What does the plaintiff have to prove if suing for a violation of Section 11 of the 1933 Act (IPOs)?

A

LAM

  • Loss
  • on Acquired Stock
  • due to Material Misstatement
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18
Q

A CPA can be held criminally or civilly liable for material misstatements or omissions made in connection with the purchase and sale of securities under Rule _____ of the 1934 Act.

A

Rule 10b-5

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19
Q

Is a CPA liable to anyone in a class of third parties whom the CPA knows will rely on the opinion if he negligently gives an opinion on an audit of a client’s financial statements?

A

YES

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20
Q

Negligence has what four elements?

A
  • Duty of care
  • Breach
  • Causality
  • Injury
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21
Q

Is reliance an element of negligence?

A

NO

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22
Q

What does the 1933 Act regulate?

A

Original issuances of securities

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23
Q

What does the 1934 Act regulate?

A

Purchases and sales after initial issuance

24
Q

Is the following a security?

Limited partnership interests

A

YES

25
Q

Is the following a security?

Oil well interests

A

YES

26
Q

Is the following a security?

Collateral trust certificates

A

YES

27
Q

Is the following a security?

CDs

A

NO

28
Q

Is the following a security?

General partnership interests

A

NO

29
Q

If the investor is passive, the investment most likely is a _____.

A

Security

30
Q

What is the purpose of the Securities Act of 1933?

A

Provide investors w/ sufficient investment information

31
Q

The registration requirements of the 1933 Act only apply to whom?

A
  • Issuers
  • Underwriters
  • Dealers
32
Q

What is defined as a written offer to sell securities?

A

Prospectus

33
Q

When does the registration statement become effective?

A

20th day after its filing w/ the SEC

34
Q

Generally, what are blue sky laws?

A

State laws governing stock sales

35
Q

In the prefiling period, is sales activity allowed?

A

NO

36
Q

Before registration, what is the only thing you can do?

A

Negotiate w/ the underwriter

37
Q

In the period after registration but before effectiveness, what type of ads may be made?

A

Tombstone ads

38
Q

What is in a tombstone ad?

A

Ad identifies the security, its price, and who will execute orders

39
Q

What is defined as issuers that have been continuously reporting under the 1934 Act for at least 12 months, have not failed to pay dividend or required payment on preferred stock, and have not defaulted on material debt or a LT rent obligation in the current fiscal year?

A

Seasoned issuers

40
Q

What is defined as seasoned issuers with at least $700 million in equity o/s worldwide in the hands of persons not affiliated with the issuer or most issuers that have issued at least $1 billion in nonconvertible securities in the last 3 years?

A

Well-known seasoned issuers

41
Q

Is Regulation A a full exemption?

A

NO; partial exemption

42
Q

Regulation A sales may not exceed what amount in a 12-month period?

A

$5 million

43
Q

Does the 1933 Act apply to private offerings?

A

NO

44
Q

Regulation D exempts what type of offerings?

A

Private offerings

45
Q

To be exempt under rule 504 the issuance of securities may not exceed what amount w/i a 12-month period?

A

$1 million

46
Q

To be exempt under rule 505 the issuance of securities may not exceed what amount w/i a 12-month period?

A

$5 million

47
Q

What is the dollar limitation under rule 506?

A

None

48
Q

Are there limits on unaccredited buyers under Rule 504?

A

No limit

49
Q

Are there limits on unaccredited buyers under Rule 505?

A

Up to 35

50
Q

Are there limits on unaccredited buyers under Rule 506?

A

Up to 35, who must be sophisticated

51
Q

Who may be liable under Section 11 of the 1933 Act?

A

Anyone who signs (privity not required)

52
Q

What type of companies must register their securities and comply with the 1934 Act?

A

1) Public companies OR
2) Private companies with more than (i) $10 million assets and (ii) at least 2,000 shareholders or 500 unaccredited shareholders

53
Q

The Form 8-K must be filed within how many days after a major change in the company?

A

4 days

54
Q

The Form 10-Q is a quarterly report that must be filed within how many days of the end of the first three quarters of each fiscal year?

A

40 days

55
Q

The Form 10-K is an annual report that must be filled annually within how many days of the end of the fiscal year?

A

60 days

56
Q

True or false.

In general, Rule 10b applies even if registration is not required.

A

True

57
Q

A tombstone advertisement makes known the availability of a _________

A

Prospectus

CPA REG (17 decks)

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