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Flashcards in Mod 23 Wrong Answers Deck (42)
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0
Q

A client’s creditor is not in…

A

Privity of contract with the accountant

1
Q

Lack of privity can be a viable defense against third parties in a…2

A

1 common law case of negligence

2 breach of contract

2
Q

The accountant’s client is in privity of contract with…

A

The accountant due to their contractual agreement

3
Q

A foreseeable third party instead of an actual foreseen third party by the CPA, the foreseeable third party…

A

Cannot recover in most states

4
Q

The Ultramares decision limited liability to…

A

Parties in privity of contract with CPA

5
Q

Under the Ultramares rule, the accountant is held liable…

A

Only to parties whose primary benefit the financial statements are intended

6
Q

Under the Ultramares rule, the accountant is held liable only to parties whose primary benefit the financial statements are intended. This generally means…

A

Only the client or third party beneficiaries are in privity of contract
with the CPA

7
Q

Many courts have more recently departed from the Ultramares decision to allow…

A

Foreseen third parties to recover from the CPA

8
Q

Courts that adhere to the Ultramares rule do not…

A

Expand liability to foreseen parties

9
Q

The securities act of 1933 requires that a plaintiff need only prove…2

A

1 That damages were incurred and

2 that there was a material misstatement or omission

10
Q

The securities act of 1933 requires that a plaintiff need only prove that damages were incurred and that there was a material misstatement or omission in order to…

A

Establish a prima facie case against CPA

11
Q

Plaintiff is not required to prove that he relied on financial info, or that there was negligence of fraud present for…

A

The Securities Act of 1933

12
Q

The Securities Act of 1933 eliminates the necessity for…

A

Privity of contract

13
Q

The CPA knew the third party that would rely on the financial statements. The financial statements contained misstatements. What 2 things must the third party establish to recover from the CPA?

A

1 show CPA was negligent in audit

2 establish that they relied on financial statements

14
Q

Under the Securities Act of 1933, a CPA is liable to any third party purchaser of registered securities for…

A

Losses resulting from misstatements in financial statements

Included in registration statement

15
Q

Under the Securities Act of 1933, a CPA is liable to any third party purchaser of registered securities for losses resulting from misstatements in financial statements included in registration statement. The plaintiff (purchaser) must establish…2

A

1 damages were incurred

2 misstatements were material misstatements of facts

16
Q

Negligence need not be…

A

Proven under the 1933 act

17
Q

To impose liability under section 11 of the Securities Act of 1933 for a misleading registration statement, the plaintiff must prove…2

A

1 damages were incurred and

2 material misstatement or omission was present in financial statements included in registration statement

18
Q

The plaintiff generally is not required to prove defendants intent to deceive nor must the plaintiff prove reliance on the registration statement under the…

A

Section 11 of the Securities Act of 1933

19
Q

To establish an accountant’s liability under the Securities Exchange Act of 1934, Section 10(b), rule 10b-5, the following 4 elements must be proven.

A

1 damages resulted to plaintiff in connection of purchase or sale
Of security in interstate commerce
2 material misstatement or omission existed in info released by firm
3 plaintiff justifiably relied on financial info
4 existence of Scienter

20
Q

Because an investor can prove that damages were in hurried and that statements contained material misstatements, they would likely…

A

Prevail in a lawsuit under the Securities Act of 1933, Section 11

21
Q

If the investor were unable to prove justifiable reliance on misstated financial information or existence of Scienter, thus recovery under…

A

The Securities Exchange Act of 1934, Section 10(b), rule 10b-5
Is unlikely

22
Q

In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff has to prove that the defendant either…2

A

1 had knowledge of falsity in registration statement or

2 acted with reckless disregard for the truth

23
Q

In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff must show that the transaction involved…

2) And must prove…

A

Interstate commerce

2) justifiable reliance

24
Q

In order to establish a case under the antifraud provisions of Section 10(b) and Rule 10b-5 of the 1934 Act, the plaintiff must show that the transaction involved interstate commerce so that there…

A

Is a constitutional basis for using this federal law

25
Q

The plaintiff need not prove that she or he was an intended user of false registration statement under…

A

Section 10(b) and Rule 10b-5 of the 1934 Act

26
Q

Under Section 11 of the Securities Act of 1933, the CPA may be liable for…

A

Material misstatements or omissions in certified financial statements

27
Q

Under Section 11 of the Securities Act of 1933, the CPA may be liable for material misstatements or omissions in certified financial statements. The CPA may escape liability by…

A

Showing due diligence

28
Q

Showing due diligence is often prevent by…

A

Showing he followed GAAP

29
Q

Under Section 11 of the Securities Act of 1933, there are not generally accepted fraud detection standards that the CPA can…

A

Use as a defense

30
Q

In a civil suit under Section 10(b) and rule 10b-5, the damages are generally…

A

The difference between amount paid and sales price if sold

31
Q

Recovery of full original public offering price is not used as damages under…

A

Section 10(b) and Rule 10b-5 1934

32
Q

Any partners of a CPA partnership can have access…

A

To partnership’s working papers

33
Q

To have access to accounting firm’s working papers, third parties need…2

A

1 to have client’s consent or

2 legal subpoena

34
Q

To preserve confidentiality, a CPA (including CPA partnership) may not allow…

A

Transmission of info in working papers to other parties

35
Q

A CPA firm may not allow transmission of information in the working papers to other parties. Exceptions are…2

A

1 consent of client or

2 production of an enforceable subpoena

36
Q

There is no exception for the IRS or FASB for…

A

Transmission of information from working papers

37
Q

In a jurisdiction having an accountant client privilege statute, the CPA generally may not turn over work papers…

A

Without the client’s permission

38
Q

In a jurisdiction having an accountant client privilege statute, the CPA generally may not turn over work papers without the client’s permission. However it is allowable to do so for…2

A

1 use in quality review under AICPA authorization or

2 to be given to state CPA society quality control panel

39
Q

Identify the law which may not result in criminal liability…and why

A

Common law

can only result in civil liability

40
Q

A CPA will be liable to a tax client for damages resulting from the following 4 activities

A

1 failure to file client’s return on timely basis
2 gross negligence or fraudulent conduct resulting in client losses
3 erroneous advice or failure to advise client on certain tax elections
4 wrongful disclosure or use of confidential info

41
Q

When a CPA refuses to sign a client’s request for filing an extension, they will…

A

Not be liable to tax client

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