Deck 23 Flashcards Preview

Regulation > Deck 23 > Flashcards

Flashcards in Deck 23 Deck (20):
1

Ultramares limits the accountant's liability for negligence to:

(i) parties in privity and (ii) intended third party beneficiaries; parties who are merely "foreseen" cannot recover.

2

Scienter

Knew the statement was wrong or recklessly disregarded the truth (intent to deceive)

3

Under rule 10b-5, a purchaser must prove:

Scienter (intent to deceive or gross negligence, which is the reckless disregard for the truth); plaintiff relied on the misstatements; and LAM

4

Under section 11, what must be proven?

The plaintiff acquired the security, there was a material misstatement in the financial statements, and the plaintiff suffered a loss (do not have to prove reliance or fraud)

5

Negligence has 4 elements:

duty of care, breach (which is a lack of due care), causality of injury, and damages

6

5 elements of fraud:

1) misrepresentation of material fact, 2) intent to deceive, 3) actual and justifiable reliance on the misrepresentation, 4) and intent to induce that reliance, and 5) damages

7

CPA legal liability can arise from 3 things:

1) breach of contract, 2) tort (negligence, fraud, or constructive fraud), or 3) violation of a statute

8

Ordinary Negligence

Failure to exercise reasonable care

9

Elements of actual fraud (MAIDS)

Misrepresentation of material fact; intent to deceive; actual reliance; induce plaintiff; and damages

10

Elements of constructive fraud

The defendant acts recklessly (gross negligence)

11

When is privity not a defense?

Not a defense to fraud (it is a defense for negligence)

12

Best defense for fraud:

lack of scienter/good faith

13

Best defense for negligence:

Due diligence

14

Best defense for breach of contract:

The client hindered my performance

15

What do you have to prove under section 11? "LAM"

suffered a Loss, Acquired the stock, and Material misrepresentation

16

Rule 10b-5 relates to:

Fraud

17

The method used to depreciate partnership property is an election made by:

The partnership and may be any method approved by the IRS

18

The standard deduction for a trust or an estate in the fiduciary income tax return is:

$0

19

Does the collection of life insurance proceeds have an effect on taxable income?

No

20

How do installment contracts effect taxable income and E&P?

Increase taxable income by the GP%; increase E&P by the entire gross profit