R5 - CPA Legal Liability Flashcards Preview

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Flashcards in R5 - CPA Legal Liability Deck (10):
1

T/F: Accountant-client privilege is a recognized right under federal law

False; generally, accountant-client privileges do not exist (except in certain few states)

2

T/F: A CPA who fraudulently gives an opinion on an audit of a client's financial statements is liable to any person who suffered a loss as a result of the fraud

True

3

Under Section 11, what must be proven by a purchaser of the security?

The plaintiff:
1. Acquired the stock
2. Suffered a loss
3. Financial statements contained a material misstatement

4

What separates Rule 10b-5 and Section 11?

Rule 10b-5 requires, in addition to the requirements under Section 11, the CPA to make the misrepresentation with scienter and the plaintiff must have relied on the misrepresentation

5

What is the difference between fraud and constructive fraud?

Constructive fraud is not done intentionally, but rather recklessly, with a disregard for the truth

6

What are the five elements of fraud?

MAIDS
Misrepresentation of a material fact
Actual and justifiable reliance
Intent to induce reliance
Damages
Scienter

7

T/F: Under the Ultramares doctrine, all parties reasonable foreseen as relying on the representations are allowed to recoup damages

False; only those in privity of contract (including named third party beneficiaries)

8

What are the 4 elements of negligence?

Duty of care
Breach of that duty
Causality
Damages

9

Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable?

Any foreseen or known third party who relied on the report, which is broader than the Ultramares doctrine

10

What is the fine for failing to file an information return?

$50 per return up to $25,000 for each period