REG mod 23

Question 1

Does the AICPA have the authority to revoke a CPA’s license?

Answer 1

No, only the state board may revoke a license.

Question 2

In order for a client to sue a CPA for actual fraud, what must be proven?

Answer 2

Material misrepresentation
Scienter
Reasonable reliance – CPA intended that the client would rely on the information
Intent
Damages were suffered

Question 3

When a tax return preparer becomes aware of client’s non-compliance with IRS laws, the tax return prepare must communicate the non-compliance to the IRS

Answer 3

False. The preparer should communicate the finding with the client and inform the client of any potential fines / penalties that may result from the non-compliance.

Question 4

Describe the statute of limitations under the Securities Act of 1933, as it relates to a CPA.

Answer 4

The maximum length of time to sue a CPA under the Securities Act of 1933 is three years from the date the registration is filed. Note: there is a one year statute of limitations—the plaintiff must file a lawsuit within one year of discovering the misrepresentation.

Question 5

Who may practice before the IRS per Treasury Department Circular 230?

Answer 5

CPAs, Attorneys and Enrolled Agents, And for limited purposes: Enrolled Actuaries, Enrolled Retirement Plan Agents, Registered Tax Return Preparers

Question 6

Describe the structure of the PCAOB.

Answer 6

It consists of 5 members, 2 must be (or have been) CPAs, 3 must not be (or have been) CPAs. None of the board members may receive payments from CPA firms.

Question 7

True / False: The Securities Act of 1933 allows for a CPA to be held liable under both civil and criminal law.

Answer 7

TRUE

Question 8

True / False: When a client requests that the preparer return his / her records, the preparer is required to return the records.

Answer 8

TRUE

Question 9

Name the committee that provides the enforcement of the AICPA’s Professional Code of Conduct.

Answer 9

Professional Ethics Executive Committee (PEEC)

Question 10

A CPA should not recommend a position on tax return unless there is ______ possibility of the position being sustained administratively or judicially on the merits.

Answer 10

Realistic

Question 11

What is the statute of limitations for fraud and failure to file a tax return?

Answer 11

There is no statute of limitations for fraud or failure to file a tax return.

Question 12

Does a plaintiff have to prove scienter in order to have a successful fraud lawsuit against a CPA under the Securities Act of 1933?

Answer 12

No

Question 13

Describe the circumstances where an accountant may be liable for ordinary negligence to a party that lacks privity of contract.

Answer 13

When the accountant knows that the third party will be relying on the work being performed by the account.

Question 14

Describe the maximum punishment for an auditor that does not maintain audit working papers for a publicly held client for five years.

Answer 14

The CPA may face up to 10 years in prison. This is due to the Sarbanes-Oxley Act.