Study Unit 2 Flashcards
Who has the authority to license or revoke the license of Certified Public Accountants (CPAs)?
The state boards of accountancy.
Who has the authority to suspend or revoke a person’s right to practice before the U.S. Securities and Exchange Commission (SEC)?
The U.S. Securities and Exchange Commission (SEC)
What are the three types of negligence under which an accountant may be liable in tort for the losses of clients?
- Ordinary negligence
- the act or failure to act given a duty to act
- Negligent misrepresentation
- A false representation of material not known to be false but intended to induce reliance
- Gross negligence
- Failure to use even slight care
What must a client show to prove an accountant’s negligence?
- The accountant owed the plaintiff a duty.
- The accountant breached this duty.
- The accountant’s breach actually and proximately caused harm to the plaintiff.
- The plaintiff incurred damages.
Are accountants liable to foreseen third parties only?
The majority rule is that the accountant is liable to foreseen third parties. In some states the accountant os also liable to all reasonably foreseeable third parties.
What must a client prove for an accountant’s (1) actual fraud and (2) constructive fraud?
The five elements that must be proven are as follows:
- The accountant made a misrepresentation - Both Actual and Constructive Fraud
- The misrepresentation was made with scienter (actual knowledge of fraud) - Actual Fraud
- Gross negligence of the accountant - Constructive Fraud
- The misrepresentation was of a material fact - both Actual and Constructive Fraud
- The misrepresentation induced reliance - both Actual and Constructive Fraud
- Another person justifiably relied on the misstatement to his or her detriment - both Actual and Constructive Fraud
For how long should auditors of public companies retain working papers?
Auditors of public companies must retain working papers for at least 7 years.
