E-REG Flashcards
(41 cards)
Scienter definition
the knowledge of or the intent to deceive, defraud, or manipulate
Constructive fraud requires the following 4 elements:
(1) misrepresentation of a material fact,
(2) reckless disregard for the truth,
(3) reasonable reliance by the injured party, and
(4) injury
In an action brought under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove the following:
(1) that plaintiff suffered damages,
(2) there was a material misstatement or omission in the financial information audited by the CPA,
(3) that the plaintiff relied on financial information, and
(4) existence of scienter.
For a purchaser of stock to successfully sue under Section 11 of the Securities Act of 1933, What must the investor prove to possibly recover losses from the CPA firm that audited the financial statements contained in the registration statement?
(1) losses and
(2) the financial statements were misleading.
The burden of proof is then shifted to the CPA to prove due diligence.
Proclivity definition
a tendency to choose or do something regularly; an inclination or predisposition toward a particular thing
Preclude definition
prevent from happening; make impossible.
Privity of contract definition
Legal doctrine that a contract confers rights and imposes liabilities only on its contracting parties. They, and not any third-party, can sue each other (or be sued) under the terms of the contracts.
A purchaser of securities may recover losses from the CPA firm that failed to discover the omission of a fact material to the statements under the Securities Act of 1933. The statute of limitations for this civil action is:
1 year from the discovery of the omission and
3 years from the offering date.
Joint and several liability definition
plaintiff may recover FULL value of the damages from any of the defendants regardless of their individual share of the liability…is most relevant in tort claims. The rule is often applied in negligence cases,
Under the Private Securities Litigation Reform Act, the defendants have what type of liability?
Proportionate to their degree of fault for unknowing conduct. The Reform Act changes the rule on joint and several liability so that each defendant is liable for his/her proportionate degree of fault for unknowing conduct
a third party (e.g., a stockholder) attempting to sue a CPA for fraud must prove 3 elements:
(1) that damages were incurred,
(2) there was a material misstatement or omission of a material fact in the financial statements, and
(3) there was justifiable reliance on the financial statements which led to the damages.
Section II of the Securities Act of 1933 makes it unlawful for a registration statement to contain an untrue material fact or to omit a material fact. What represents a viable defense for the CPA?
(1) The false statement is immaterial in the overall context of the financial statements.
(2) the due diligence defense,
(3) proving that the plaintiff knew the F/S were incorrect when the investment was made, and
(4) proving the loss was caused by factors other than the misstatement or omission
Penalties that may be imposed on preparers if they fail to fulfill the following requirements (unless failure is due to reasonable cause):
(1) Preparer must sign returns done for compensation.
(2) Preparer must provide a copy of the return or refund claim to the taxpayer no later than when the preparer presents a copy of the return to the taxpayer for signing.
(3) Returns and claims for refund must contain the SS # of preparer and identification # of preparer’s employer or partnership (if any).
(4) Preparer must either keep a list of those for whom returns were filed with specified information, or copies of the actual returns, for three years.
(5) Employers of return preparers must retain a listing of return preparers and place of employment for 3yrs.
(6) Preparer must not endorse or negotiate a refund check issued to a taxpayer.
(7) Preparer must not disclose information furnished in connection with the preparation of a tax return, unless for quality or peer review, or under an administrative order by a regulatory agency.
Accountants should be familiar with Treasury Department Circular 230 because:
It provides regulations regarding practice before the IRS
Securities Exchange Act of 1934:
regulates the trading of securities of issuer companies, including the information contained in periodic reports (e.g., Form 10-Ks).
The Private Securities Litigation Reform Act amends:
both the Federal Securities Act of 1933 and
the Federal Securities Act of 1934.
Auditors who audit financial statements under Federal Securities Exchange Act of 1934 are required to establish procedures to (Under the Private Securities Litigation Reform Act)
a. Detect material illegal acts
b. Identify material related-party transactions, and
c. Evaluate ability of firm to continue as going concern
Surety definition
a person who takes responsibility for another’s performance of an undertaking, for example their appearing in court or the payment of a debt.
synonyms: guarantor, sponsor
bona fide dispute definition
Latin for “good faith,” it signifies honesty, the “real thing” and, in the case of a party claiming title as “bona fide” purchaser or holder, it indicates innocence or lack of knowledge of any fact that would cast doubt on the right to hold title.
liquidated debt vs. unliquidated debt
liquidated debt: still must pay the full original amount
unliquidated debt: can settle the debt for a lesser amount
Unequivocal and unqualified definition
unambiguous; clear; having only one possible meaning or interpretation:
an unequivocal indication of assent; unequivocal proof.
2.absolute; unqualified; not subject to conditions or exceptions:
Anticipatory repudiation definition
also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract
Contemporaneous definition
Simultaneous, existing at the same time
Parol evidence rule:
a principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document.
