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Yaeger REG > Mod 23 Professional And Legal Responsibilities remaining text > Flashcards

Mod 23 Professional And Legal Responsibilities remaining text Flashcards

0
Q

1 contract law
2 the law of negligence
3 fraud
What kind of laws are these?

A

Common law and largely judge-made law

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1
Q

Accountant’s civil liability arises primarily from…5 laws

A 
1 contract law
2 the law of negligence 
3 fraud
4 Securities Act of 1933
5 Securities Exchange Act of 1934
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2
Q

Securities Act of 1933
Securities Exchange Act of 1934

What kind of laws are these?

A

Federal statutory law

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3
Q

The accountant has a duty to conduct his or her work with…

A

The same reasonable care as an average accountant

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4
Q

The CPA’s work papers are retained and confidential and the CPA can’t release information in the work papers…

A

Without the client’s consent

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5
Q

Workpapers are retained as…

A

Evidence by the accountant of the work they performed

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6
Q

In general privileged communication between a CPA and the client are…

A

Not sanctioned under federal statutory or common law

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7
Q

Privileged communications between CPA and client exist in…

A

Such states that passed statute granting the right

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8
Q

The requirements for education and experience set by the state boards…

A

Vary across states

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9
Q

To audit public companies, the CPA in charge of the engagement must have…

A

A license to practice issued by the state board of accountancy

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10
Q

To audit public companies, the individual’s firm must…2

A

1 have a permit to practice issued by the appropriate state board of accountancy

2 be registered with the PCAOB

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11
Q

State boards have their own codes of…

2) However state boards generally follow…

A

Professional ethics

2) the AICPA Code of Professional Conduct

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12
Q

Violation of an AICPA rule generally involves violation of…

A

A state board rule

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13
Q

The AICPA Code of Professional Conduct provides minimum levels of acceptable conduct relating to…

A

All services performed by CPA’s, unless wording of a standard specifically excludes some members

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14
Q

The AICPA has developed the Uniform Accountancy Act (UAA) to provide state jurisdictions a…

A

Model act to regulate CPAs

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15
Q

Key Provisions of the Uniform Accountancy Act (UAA) include:

State board of accountancy of the state will issue the “certified public accountant” credential to individuals meeting the…3

A

Experience, education and examination requirements

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16
Q

Key Provisions of the Uniform Accountancy Act (UAA) include:

A bachelors degree is required for…

A

The first 5 years after the act becomes effective

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17
Q

Key Provisions of the Uniform Accountancy Act (UAA) include:

After 5 years, how many semester hours are required with a bachelors degree or higher?

A

150 semester hours

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18
Q

The only professional services for which licensing is required are…2

A

1 attest services

2 compilation of financial statements under SSARS

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19
Q

The only professional services for which licensing is required are:

4 types of attest services

A

1 audits
2 reviews
3 examination of prospective FS
4 PCAOB engagements

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20
Q

The only professional services for which licensing is required are attest services of:

Audits of financial statements performed in accordance with…

A

AICPA Statements on Auditing Standards (SAS)

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21
Q

The only professional services for which licensing is required are attest services of:

Reviews of financial statements performed in accordance with…

A

AICPA Statements on Standards for Accounting and Review

Services (SSARS)

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22
Q

The only professional services for which licensing is required are attest services of:

An examination of prospective financial statements performed in accordance with the…

A

AICPA Statements on Standards for Attestation Engagements

SSAE

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23
Q

The only professional services for which licensing is required are attest services of:

An engagement performed in accordance with the standards of the…

A

Public Company Accounting Oversight Board (PCAOB)

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24
Q

To renew licenses and permits the Uniform Accountancy Act (UAA) includes…

A

Periodic peer review and continuing education requirements

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25
Q

To facilitate interstate practice and free movement of CPAs between states, the UAA provides that…

A

Individuals that have met “substantial equivalency” shall be allowed
To be licensed in the state

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26
Q

The state board will regulate and enforce the…

A

Practice of accountancy In the state

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27
Q

The UAA has ethical provisions that are typically included in the…

A

Code of ethics of state societies and AICPA

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28
Q

The UAA has ethical provisions that are typically included in the code of ethics of state societies and the AICPA such as the requirements of…2

A

1 confidentiality

2 working papers

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29
Q

The AICPA Code of Professional Conduct is interpreted and enforced by the…

2) What are they?

A

Professional Ethics Executive Committee (PEEC)

2) a senior technical committee of the AICPA

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30
Q

State accountancy boards ethics rules are enforced by the…

A

Various state boards of accountancy

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31
Q

The codes of state societies of CPA’s are very similar to the…

A

AICPA Code of professional conduct

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32
Q

Virtually all state societies have agreements with AICPA to allow…

A

Joint enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP)

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33
Q

Virtually all state societies have agreements with AICPA to allow join enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP). This means a…2

A

1 Single investigation and if warranted

2 a single settlement agreement or joint trial board hearing

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34
Q

Enforcement of rules regarding competitive bidding is…

A

Excluded from the JEEP process

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35
Q

Joint trial board may discipline CPAs, 5 possible results

A 
1 no violation/dismissal
2 admonishment 
3 corrective action required
4 suspension for up to 2 years
5 expulsion from AICPA
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36
Q

Admonishment, what is mandatory?

A

Publication of admonishment is mandatory

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37
Q

Corrective action required, example

A

Addition continuing professional education

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38
Q

Violation of state board code can result in…

A

Revocation of CPA Certificate and loss of ability to practice public accounting

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39
Q

Any member who departs from rulings or interpretations has…

A

Burden justifying it in any disciplinary proceedings

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40
Q

The SEC can penalize accountants with…2

A

1 civil fines and

2 mandates to pay profits gained from violations of securities laws
And regulations

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41
Q

When investigations lead to alleged violations…

A

A hearing will be held by the PCAOB

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42
Q

Disciplinary actions:

A PCAOB hearing may result in…4

A

1 sanctions being imposed on the firm or the individuals involved
2 suspension or revocation of firm’s registration
3 suspension or bar of individual from associating w/registered
Public accounting firm
4 civil monetary penalties

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43
Q

The PCAOB may also impose other remedial measures such as…2

A

1 improvements in firm’s quality control or training

2 independent monitoring of audit work of firm or individual within
A firm

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44
Q

Common law is law that has historically been derived from…

A

Court interpretations of what is fair and equitable

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45
Q

Most of common law has now been…

A

Codified to state statutes

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46
Q

CPAs have responsibilities to their clients that are…

A

Codified in common law

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47
Q

Liability to clients for breach of contract

A

CPA may be held liable to a client if the CPA fails to perform substantially as agreed under contract (engagement letter)

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48
Q

Duties under contract may be either…

A

Implied or expressed

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49
Q

Implied duties under contract

A

CPA owes duty in contract to perform in nonnegligent manner

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50
Q

Express duties under contract

A

CPA owes duty to perform under terms of the contract

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51
Q

4 Terms expressed in the engagement letter that are expressed clearly in writing

A

1 nature + scope of engagement
2 procedures and tests to be used
3 engagement will not necessarily uncover fraud or error
4 engagement should at least be signed by client

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52
Q

Engagement letter:

The nature and scope of the engagement are expressed to…

A

Avoid misunderstandings between the CPA and client

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53
Q

Engagement letter:

The engagement will not necessarily uncover fraud, defalcations, errors or illegal acts, unless the CPA…

A

Agrees to greater responsibility

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54
Q

The CPA will typically sign the engagement letter but…

A

Oral contract for audit is still enforceable without engagement
Letter

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55
Q

A CPA is said to be in privity of contract with client when…

A

Contract exists between them

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56
Q

The reverse is true, when a contract exists between them, the client is…

A

In privity of contract with CPA

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57
Q

An accountant is not normally liable for failure to…

A

Detect fraud

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58
Q

A CPA is liable for failure to detect fraud if…3

A

1 normal audit or review would have detected it

2 CPA has undertaken greater responsibility such as fraud audit

3 wording of audit report indicates greater responsibility

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59
Q

In an audit or review of financial statements, the CPA is under duty to investigate when…

A

He discovers/becomes aware of suspicious items

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60
Q

A CPA firm issues its opinion a few days late because of a client’s failure to supply needed info. The CPA firm is…

A

Entitled to full agreed upon fee under contract

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61
Q

When a breach of contract occurs the CPA is…

A

Not entitled to compensation if breach is major

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62
Q

Breach of contract:

The CPA is entitled to compensation if there are…

2) what may the client do?

A

Minor errors

2) client may deduct from fees any damages caused by breach

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63
Q

Breach of contract:

The client may recover any damages caused by breach even if CPA is…

A

Not entitled to fee

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64
Q

In general punitive damages are not awarded for…

A

Breach of contract

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65
Q

The accountant has the duty to perform with same degree of skill and judgment possessed by average (reasonable) accountant. This is the standard used in cases involving…

A

Ordinary negligence

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66
Q

Standard for accountants is guided by…5

A 
1 state and federal statutes
2 court decisions
3 contract with client
4 GAAS and GAAP
5 customs of the profession
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67
Q

Failure to follow GAAS virtually establishes a…

A

Lack of due care

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68
Q

Following GAAS does not…

A

Automatically preclude negligence

But is strong evidence for presence of due care

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69
Q

GAAS and GAAP and customs of the profession are both…

A

Persuasive but not conclusive

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70
Q

If a CPA issues an unqualified opinion, when included in assets was inventory stated at cost, when market was materially below cost.

What is this an example of?

A

A violation of GAAP that can be used to establish that auditor was negligent

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71
Q

Liability to clients is based on a CPA breaching a duty owed of…

A

An average reasonable accountant

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72
Q

Damages or losses that resulted from a breach:

Damages are limited to…

A

Actual losses that use of reasonable care would have avoided

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73
Q

Damages or losses that resulted from a breach:

Punitive damages are…

A

Not normally allowed for ordinary negligence

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74
Q

Damages or losses that resulted from a breach:

Defense of CPA

A

Contributory negligence

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75
Q

Contributory negligence may be a complete defense by CPA in many states if…

A

Client’s own negligence substantially contributed to the CPA’s
failure to perform audit adequately

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76
Q

A CPA failed to detect a material fraud in an audit of the client’s financial statements. However the CPA had communicated to the client for a number of years a significant deficiency in internal control that allowed the fraud to occur. The client ignored the recommendations and failed to correct the deficiency in internal control. The client’s contributory negligence…2

A

1 In some states may prevent client from recovering losses from CPA
For negligence

2 In other states it will reduce liability for CPA

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77
Q

A causal relationship must exist between…

2) the cause must be…

A

Fault of accountant and damages of plaintiff

2) proximate (foreseeable)

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78
Q

If items are stolen during the audit and not detected…

A

The CPA may be held liable for those items

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79
Q

CPA will only be held liable for items taken before an audit if it is shown that…

A

The CPA’s detection of stolen items would have resulted in their recovery

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80
Q

The accountant’s liability is not based solely on…

2) liability requires at least…

A

Honest errors of judgment

2) negligence under common law

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81
Q

Constructive fraud is also known as…

A

Gross negligence

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82
Q

Constructive fraud (gross negligence) when proving four elements and…

A

Reckless disregard of truth is established instead of knowledge of falsity

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83
Q

Contributory negligence of client is not a defense available for CPA in cases of…2

A

1 Fraud or

2 constructive fraud/gross negligence

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84
Q

For a plaintiff to prove fraud, constructive fraud or gross negligence…

A

Privity of contract is not required

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85
Q

Fraud, constructive fraud or gross negligence:

Punitive damages

A

Punitive damages may be added to actual damages for these

Types of cases

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86
Q

Privity of contract:

In typical accountant-client relationship, there usually is…

A

No privity of contract between CPA and third parties who rely on financial statements

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87
Q

Traditionally accountant’s could use the defense of no privity against third parties in…

A

Contract and negligence cases

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88
Q

Ultramares decision is a leading case in which accountants are…

A

Held liable for ordinary negligence only to parties who primarily
benefit from the audit or audited FS

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89
Q

Ultramares example:
First Bank requested Goodman Company to obtain an audit to receive a needed loan. Adam CPA audited the FS of Goodman, knowing Goodman was obtaining the audit to satisfy the request of First Bank. In this case, First Bank would be considered…

A

A primary beneficiary of the audit

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90
Q

A primary beneficiary of an audit would have…

A

The same rights as the client under common law

91
Q

Under Ultramares, a third party who can prove…

2) this is a significant…

A

Fraud or constructive fraud (gross negligence) may recover from
CPA

2) minority rule today

92
Q

For a foreseeable party to be awarded damages, they must prove…3

A

1 Losses

2 negligence by CPA (either ordinary or gross depending on state)

3 proximate cause

93
Q

Proximate cause..

A

Reliance on work of CPA caused losses

94
Q

Both accountants and managements are normally…

A

Named as defendants in cases

95
Q

Joint liability:

In a state that applies joint liability both…

A

Accountant and management are liable to full amount of the

obligation

96
Q

Joint liability:

If management has no funds…

A

The entire amount may be collected from the accountant

97
Q

What is another name for several liability?

A

Proportionate liability

98
Q

In a state that applies several (proportionate liability) the accountant and management are…

A

Only obligated to pay their respective share of damages based on
Degree of responsibility for losses

99
Q

Several liability is included in the…

A

AICPA Uniform Accountancy Act

100
Q

In a state that applies joint and several liability…2

A

1 Each of the parties are responsible for the full amount of the
obligation

2 but may seek reimbursement from other parties

101
Q

Most state courts apply…

A

Joint and several liability

102
Q

1933 Act requires…2

A

1 Registration of initial issuances of securities with SEC and

2 makes it unlawful for registration statement to contain untrue
material fact or omit material fact

103
Q

Material fact

A

One about which average prudent investor should be informed

104
Q

Most potential account at liability occurs because registration statement (and prospectus) includes…

A

Audited financial statements

105
Q

1933 act:

CPAs legal liability arises for…2

A

1 untrue material fact or

2 omission of material fact in registration statement (or prospectus)

106
Q

Periodic reports to SEC or annual reports to stockholders are…

A

In the 1934 Act

107
Q

1933 Act:

Parties that may sue 2

A

1 purchaser of registered securities

2 third parties without privity of contract

108
Q

1933 Act:

Any purchaser of registered securities 2

A

1 plaintiff need not be initial purchaser

2 purchaser generally must prove that specific security was offered through registration statement

109
Q

Exchange and issuance of stock based on a merger…

A

Counts as a sale

110
Q

Third parties can sue without having privity of contract with accountant under the…

A

Federal Securities Act

111
Q

Liability under Section 11 of the 1933 Act:

This imposes liability on auditors and other experts for…2

A

1 Misstatements or omissions of material fact in certified financial statements

2 or other info provided in registration statements

112
Q

The registration statement is the document that is used to…

A

Sell securities

113
Q

The registration statement includes:

A description of the company’s…

A

Properties and business

114
Q

The registration statement includes:

A description of the…

A

Security to be offered for sale

115
Q

The registration statement includes:

Information about the…

A

Management of the company

116
Q

The registration statement includes:

Financial statements certified by…

A

Independent accountants

117
Q

CPAs defenses against 1933 act

A

1 due diligence
2 plaintiff knew FS were misstated
3 lack of causation
4 followed GAAS

118
Q

Lack of causation

A

Loss was due to factors other than the misstatement or omission
in the financial statements

119
Q

For the 1933 Act, the plaintiff need not prove reliance on financial statements unless…

A

Security was purchased at least 12 months after effective date
Of registration statement

120
Q

Under the 1933 Act, the plaintiff need not prove…

A

Negligence or fraud

121
Q

1933 Act damages:

Difference between…

A

Amount paid and market value at time of suit

122
Q

1933 Act damages:

If sold, difference between…

A

Amount paid and sales price

123
Q

1933 Act damages:

Damages cannot exceed…

A

Price security was offered to the public

124
Q

1933 Act damages:

Plaintiff can’t recover…

A

Decrease in value after the suit is brought

125
Q

1933 Act damages:

Accountant is given…

A

The benefit of any increase in market value during the suit

126
Q

The securities Exchange Act of 1934 regulates…

A

Securities sold on national stock exchanges

127
Q

Securities act of 1934:

Includes securities traded over the counter and other equity securities where the corporation has more than…

A

1 $10 million in total assets and

2 security is held by over 500 persons at end of fiscal year

128
Q

1934 act section 10 makes it unlawful to…3

A

1 employ any device, scheme or artifice to defraud

2 make untrue statement of material fact or omit material fact

3 engage in fraud or deceit in connection w/purchase/sale of security

129
Q

Securities act of 1934:

Section 18 makes it unlawful to make false or misleading statement with respect to…

A

Material statement unless done in good faith

130
Q

Under the 1934 Act, the plaintiff can’t recover if he or she is…

A

Reckless or fraudulent

131
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff purchaser must prove damages resulted in connection with…

A

Purchase or sale of registered security in interstate commerce

132
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove there was a…

A

Material misstatement or omission from issuer’s (public company’s) statements

133
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove justifiable…

A

Reliance on financial info

134
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove existence of…

A

Scienter

135
Q

Scienter includes…2

A

1 Reckless disregard of truth or knowledge of falsity

2 lack of good faith

136
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

Negligence alone will not…

A

Subject accountant to liability

137
Q

Proof requirement section 18 under the 1934 act:

Plaintiff purchaser must prove 3

A

1 damages were incurred

2 material misstatement or omission on report filed with SEC

3 plaintiff read and relied on defective report

138
Q

Proof requirement section 10, rule 10b-5, under the 1934 act:

The burden of proof is shifted to the accountant who may escape liability by proving he…

A

Acted in good faith

139
Q

Under the 1934 Act, an accountant who has been grossly negligent typically will…

A

Not be able to establish good faith

140
Q

Under the 1934 act, an accountant who has only been negligent will…

A

Probably be able to establish good faith

141
Q

1934 act:

damages are calculated as the…

A

Difference between amount paid by plaintiff and market value at
Time of suit

142
Q

1934 act:

If sold, damages are calculated as the…

A

Difference between amount paid and sale price

143
Q

Due diligence is a defense for…

A

The 33’ act only, not 34

144
Q

CPAs ownership of work papers has the purpose of…

A

Preserving confidentiality of client info

145
Q

Accountant must provide work papers if agreeing to provide access to working papers to a…

A

Government agency is part of the agreement with the client

146
Q

For presenting work papers subpoenas should be…

A

Limited in scope and for specific purpose

147
Q

The accountant may challenge a subpoena as being…

A

Too broad or unreasonably burdensome

148
Q

Privileged communications between accountant and client is…

A

Generally not provided by state or federal laws

149
Q

Federal laws do not recognize…

A

Privileged communications

150
Q

If an accountant is acting as an agent for an attorney, their communication…

A

Is privileged

151
Q

If part of privileged communication is allowed…

A

All of privilege is lost

152
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The client…

A

Consents

153
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The client consents. If the client is a partner…

A

Each partner is actually a client and therefore must give consent

154
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

To comply with…

A

GAAS and GAAP

155
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

To comply with enforceable…

A

Subpoena (courts where privilege is not recognized)

156
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

Disclosure is made in conjunction with…

A

A quality (peer) review of CPA firm’s practice

157
Q

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The AICPA is responding…

A

An investigation by the AICPA ethics division or trial board

158
Q

An interpretation of the Code of Professional Conduct allows a CPA to provide confidential client information to a third party service provider (eg tax preparer)…

A

Without the client’s permission

159
Q

The CPA must enter into a contractual agreement with the service provider to…2

A

1 Maintain confidentiality of info
And
2 be reasonably assured 3rd party service provider has appropriate procedures in place to prevent unauthorized release of confidential
Info

160
Q

US Supreme Court has held that tax accrual files are…

A

Not protected by accountant-client privilege

161
Q

Privacy is defined as the…

A

Rights and obligations of individuals and organizations with respect
to collection, use retention and disclosure of personal info

162
Q

Accountants that prepare individual tax returns or provide nonbusiness tax or financial advice must be familiar with the provisions of the…

A

Gramm-Leach Bliley (Financial Modernization) Act of 1999

163
Q

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

CPAs are prohibited from disclosing to…

A

No affiliated third party any Nonpublic personal information about
Their clients

164
Q

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

Related to FTC regulations require CPAs to…

A

Develop, implement, maintain a comprehensive info security

program that outlines ways to protect client info

165
Q

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

CPAs are responsible for maintaining the confidentiality of…

A

Information that is outsourced for processing

Ex. outsourced tax return preparation to a firm in a foreign country

166
Q

The IRC prohibits tax prepares from knowingly or recklessly disclosing or using…

A

Tax related info other than in connection with preparation of a
Return

167
Q

Situations in which there may be a duty to notify parties outside the client:

When a form 8-K is disclosed about a change in auditor’s, securities laws require that…2

A

1 The client must disclose reason for change and

2 auditor must indicate if they agree or how they disagree

168
Q

Situations in which there may be a duty to notify parties outside the client:

Disclosure to…

A

Successor auditor from predecessor auditor after client consent

169
Q

Situations in which there may be a duty to notify parties outside the client:

Disclosure in response to…

A

Subpoena

170
Q

Situations in which there may be a duty to notify parties outside the client:

Disclosure to funding…

A

Funding agency for entities receiving governmental financial
assistance

171
Q

Accountant is liable for acts of…

A

Employees in course of employment

172
Q

Professional liability insurance typically is used to cover such losses:

Client’s insurance company is…

A

Subrogate to client’s rights

Ex. Has same rights to recover loss against CPA as client had

173
Q

Portions of debts incurred in violation of securities laws not covered by insurance are not…

A

Dischargeable in bankruptcy by the accountant

174
Q

Principal auditor is still liable for all work unless…

A

The audit report indicates a division of responsibility

175
Q

Principal auditor cannot rely on unaudited financial data must…

A

Disclaim or qualify opinion

176
Q

The accountant may be held liable in subsequently discovered facts that existed at report date indicate statements that were misleading unless…3

A

1 immediate investigation is conducted

2 prompt revision of statements is possible

3 SEC and persons known to be relying on statements are notified
By client or CPA

177
Q

Accountant may be liable for compilation and review engagements if:

Failure to mark each page…

A

“Unaudited” or “See Accountant’s Compilation Report”

178
Q

Accountant may be liable for compilation and review engagements if:

Failure to issue…

A

A disclaimer of opinion or an appropriately worded compilation or review report

179
Q

Accountant may be liable for compilation and review engagements if:

Failure to follow appropriate…

A

AICPA Statements on Standards for Accounting and Review

Services

180
Q

Accountant may be liable for compilation and review engagements if:

Failure to inform client of any…

A

Discovery of major issues

181
Q

Securities act of 1933 and 1934:

An accountant can be held criminally liable for…

A

Willful illegal conduct

182
Q

2 examples of willful illegal conduct by CPA

A

1 intentional misleading omission of material facts

2 putting false information in registration statement

183
Q

Criminal punishments for willful misconduct, subject to fine of up to…

A

$10,000 and up to 5 years in prison

184
Q

Criminal violations of IRC 2

A

1 willfully preparing false return

2 willfully assisting in tax evasion

185
Q

Perjury

A

Willfully preparing false return

186
Q

RICO Act

A

Racketeer Influenced and Corrupt Organizations Act

187
Q

Criminal liability under RICO:

Covers individuals affiliated with businesses or associations involved…

A

In a pattern of racketeering

188
Q

Racketeering includes organized crime, but also includes…2

A

1 fraud under federal securities laws

2 mail fraud

189
Q

Accountants are subject to criminal penalty through affiliation with…

A

Accounting firm or business involved in racketeering

190
Q

Pattern of racketeering means…

A

At least 2 illegal acts of racketeering in previous 10 years

191
Q

RICO has been expanded to allow…

A

Civil suit by private parties

192
Q

RICO has been expanded to allow civil suit by private parties…2

A

1 Trebel damages allowed

2 it has been applied against CPAs even without criminal indictment
Or conviction

193
Q

Private Securities Reform Act creates a…

A

Safe harbor from legal liability for preparation of forward looking statements

194
Q

Private Securities Reform Act safe harbor includes…2

A

1 projections of income, revenues, EPS and

2 company plans for products and services

195
Q

To fall within safe harbor, written or oral forward looking statement should include…

A

Cautions and identify assumptions and conditions that may cause projections to vary

196
Q

The Purpose of the Private Securities Reform Act safe harbor is to encourage…

A

Company to give investors more information without fear of lawsuits

197
Q

Discouragement of frivolous class action lawsuits relieves accountants for…

A

Being deep pockets beyond their proportional fault

198
Q

Joint and several liability is imposed if…

A

Defendant knowingly caused harm

199
Q

Under joint and several liability CPAs may be held liable for the proportionate share of damages they actually and knowing caused plus…

A

An additional 50% if principal defendant is insolvent

200
Q

PCAOB may regulate the nature and extent of…

A

Nonaudit services that CPA firms may perform for issuer audit
Clients

201
Q

The PCAOB may enforce compliance with…2

A

1 Professional standards

2 securities laws relating to accountants and audits

202
Q

Material services must receive…

2) fees for those services must be…

A

Preapproval by audit committee

2) disclosed to investors

203
Q

SOX prohibits the audit partner from having…

A

Primary responsibility over the issuer’s audits

204
Q

SOX prohibits the audit partner who reviews audits from…

A

Serving more than 5 years, audit partners must be rotated every
5 years

205
Q

The SEC in disciplining a CPA may censure, temporarily bar or permanently bar him for…3

A

1 lack of qualifications needed

2 improper professional conduct

3 willful violation of helping another violate securities laws or regulations

206
Q

Blackout periods were established for issuer’s of certain security transactions types that limit companies’…

A

Purchase, sale or transfer of funds in individual accounts

207
Q

SOX requires stiffer fines for other white collar crimes including federal law covering…2

A

Mail fraud and wire fraud

208
Q

If taxing authority has no written standard, the following should be applied:

For undisclosed positions…

A

Realistic possibility of success

209
Q

If taxing authority has no written standard, the following should be applied:

For disclosed positions…

A

Reasonable basis

210
Q

If taxing authority has no written standard, the following should be applied:

In regards to tax shelters…

A

Inform client of risks in taking those shelters

211
Q

When reasonable grounds for omitting an answer exist, the CPA is not required to…

A

Provide an explanation on the return of reason for omission

212
Q

Reasonable grounds for omission on a tax return include…3

A

1 info is not readily available and not significant to taxable income
Or liability
2 uncertainty as to meaning of question
3 answer is voluminous and return states data will be supplied
Upon examination

213
Q

An error on return preparation includes position, omission or method of accounting that…

A

At the time return is filed fails to meet standards as outlined

214
Q

An error (in return preparation) does not include an…

A

Item that has insignificant effect on client’s tax liability

215
Q

A practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim for refund that the practitioner reasonably should know contains…

A

A position that lacks a reasonable basis

216
Q

Written advice is generally considered to be a covered opinion if it involves…2

A

1 a listed transactions or a

2 place or arrangement where the principal purpose is tax avoidance

217
Q

Advice that does not constitute a covered opinion is subject to…

A

More relaxed standards

218
Q

Written advice is a reliance opinion if the advice concludes that…

A

It is more likely than not that one or more significant federal tax
Issues would be resolved in the taxpayer’s favor

219
Q

Written advice is not treated as a reliance opinion if practitioner prominently discloses I the written advice that it…

2) for purpose of avoiding…

A

Not intended or written by practitioner to be used by tax payer

2) avoiding penalties that may be imposed on tax payer

220
Q

A preparer is subject to a penalty equal to the greater of $1,000 or 50% of income derived by the preparer with respect to the return or refund claiming any part of an understatement of liability with respect to the return or claim is due to…

A

An undisclosed position on the return where there is no substantial authority

221
Q

Substantial authority exists if the weight of authorities supporting the position is…

A

Substantial in relation to weight of those contrary to position

222
Q

Penalty can be avoided by…

A

Adequate disclosure of questionable position on return or refund
Claim

223
Q

Penalty can be avoided through a…

A

Showing that there was a reasonable basis for the position

224
Q

For avoiding penalty A higher more likely than not standard applies if the position is…

A

With respect to a tax shelter or reportable transaction

225
Q

A penalty can also be avoided if the preparer can show there was a…2

A

1 Reasonable cause for understatement

2 and preparer acted in good faith

Yaeger REG (77 decks)

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