Question 1

Which of the following is true regarding the liability of accountants under the law of Canada?

Accepted Answer

A)   Canadian law is well settled in relation to an accountant's liability to nonclients.
B)   Canadian law does not recognize liability of an auditor in relation to a prospectus distributed with the auditor's filed consent by an issuer of securities containing misrepresentations.
C)   Canadian law does not recognize liability on the part of an auditor for misrepresentations made in secondary-market disclosures made with the auditors' written consent.
D)   As in the U.S., in Canada the common law holds accountants liable for negligence to clients.
E)   In Quebec alone, accountants may not be held liable even if a causal link between fault and damage is established.F) A) and D)
G) C) and E)

Question 2

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the action brought by ABC Bank against Selena based upon the loss of funds on Carl's loan?

Accepted Answer

A)   The bank will be able to recover because there was privity of contract.
B)   The bank will be able to recover because no more than $10,000 was involved.
C)   The bank will be able to recover because Selena was aware of how her work would be used even if she did not know the exact name of the bank involved.
D)   The bank will not be able to recover because the identity of the bank was not known to Selena.
E)   The bank will not be able to recover unless it can establish that it had dealt with Selena in the past.F) B) and E)
G) A) and B)

Question 3

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Accepted Answer

A)   The economy will benefit if investors recognize that they have sufficient rights of recovery.
B)   It is only fair to hold accountants liable if they are in privity with a plaintiff.
C)   Much of what accountants do is prepare work for parties that are not their clients and therefore, it makes sense for accountants to owe a duty to intended receivers.
D)   Potential investors should have a route of recovery even if they could not be foreseen by accountants.
E)   The general public should have a route of recovery even if they could not be foreseen by the accountant.F) A) and E)
G) A) and D)

Question 4

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Accepted Answer

A)   The Privity Rule
B)   The Near Privity Rule
C)   The Restatement Test
D)   The Ultramares Rule
E)   The Reasonably Foreseeable Users RuleF) D) and E)
G) B) and E)

Question 5

Which of the following is false regarding compliance with GAAP and GAAS?

Accepted Answer

A)   Failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty.
B)   Compliance with GAAP and GAAS does not automatically mean that the duty of care has been met.
C)   In some circumstances, a reasonable, competent accountant would do more than that the GAAP or GAAS requires.
D)   GAAP standards are established by the Financial Accounting Standards Board, and GAAS standards are established by the American Institute of Certified Public Accountants.
E)   State statutes may not impose additional legal requirements on accountants beyond GAAP and GAAS.F) A) and D)
G) B) and E)

Question 6

Which of the following is fraud without fraudulent intent?

Accepted Answer

A)   Actual fraud
B)   Presumed fraud
C)   Immaterial fraud
D)   Constructive fraud
E)   Reliance fraudF) B) and C)
G) A) and B)

Question 7

When an audit is complete,an accountant usually issues a[n] _______________ letter stating his or her assessment of the company that was audited.

Accepted Answer

A)   Opinion
B)   Auditing
C)   Accounting
D)   Disclaimer
E)   ResponsiveF) A) and E)
G) A) and D)

Question 8

If Paul ______________ performed on the contract,he may be entitled to complete compensation minus the amount of damages caused by the breach.

Accepted Answer

A)   Completely
B)   Substantially
C)   Partially
D)   Adequately
E)   MateriallyF) All of the above
G) A) and C)

Question 9

Which of the following was the result on appeal in the case in the text In re Century Aluminum Company Securities Litigation,the case in the text involving plaintiffs who purchased secondary-offering shares and who attempted to sue under Section 11 of the Securities Act of 1933 for misrepresentations allegedly released regarding the secondary offering?

Accepted Answer

A)   The court affirmed the trial court's dismissal of the case recognizing that it is impossible as a matter of law for purchasers of aftermarket shares to have claims based on Section 11 because Section 11 does not apply to secondary-offering shares.
B)   The court affirmed the trial court's dismissal of the case recognizing that it is often impossible for purchasers of aftermarket shares to have claims based on Section 11 because they normally purchase through brokers that do not acknowledge the source of the shares.
C)   The court affirmed the trial court's dismissal of the case recognizing that the plaintiffs had not submitted sufficient evidence of misrepresentations.
D)   The court allowed the case to proceed contingent on the plaintiffs submitting proof by an expert that misrepresentations occurred.
E)   Finding that the plaintiffs had met all prerequisites in regard to proof, the court ruled that the case should be allowed to proceed to trial.F) A) and B)
G) All of the above

Question 10

The contract that Paul and Teresa entered into setting the scope of Paul's duties is referred to as a[n] ___________.

Accepted Answer

A)   Engagement letter
B)   Accounting contractual letter
C)   Auditing contractual letter
D)   GAAP letter
E)   GAAS letterF) B) and C)
G) C) and D)

Question 11

A financial statement is considered ____________ if no,or insubstantial,accounting procedures were used in the compilation of the document.

Accepted Answer

A)   Audited
B)   Unaudited
C)   Unqualified
D)   Qualified
E)   Generally acceptedF) B) and E)
G) All of the above

Question 12

After a significant amount of responsibility for the bankruptcy of ____________ Corporation was placed on the firms that provided accounting services for the corporation,the role of accountants became a question of significant public interest.

Accepted Answer

A)   Enron
B)   Acron
C)   Selinas
D)   Prolific
E)   DeltoidF) B) and E)
G) A) and B) A

Question 13

What must be proven in order to recover damages under Section 10(b)of the Securities Exchange Act of 1934 and the corresponding SEC Rule 10b-5?

Accepted Answer

To recover damages under Section 10(b)an...

Question 14

For which of the following does the Securities Exchange Act impose liability?

Accepted Answer

A)   Fraudulent statements made to the SEC.
B)   Fraudulent statements made to courts.
C)   Fraudulent statements made to a client in connection with performing an audit.
D)   Negligence in performing an audit or in the construction of a financial statement.
E)   Fraud in performing an audit.F) B) and E)
G) B) and D)

Question 15

Assuming that Teresa can establish that Paul failed to meet his contractual obligations,which of the following would be available to her?

Accepted Answer

A)   Only a recovery for the cost of obtaining a different accountant to perform breached contractual duties.
B)   Reasonable and foreseeable damages related to the breach excluding the cost of another accountant to perform breached contractual duties.
C)   Reasonable and foreseeable damages related to the breach and damages for fraud which would be presumed.
D)   The cost of obtaining a different accountant to perform breached contractual duties and also any reasonable and foreseeable damages related to the breach.
E)   Nothing unless the contact specifically provides for damages in the event of a breach.F) A) and D)
G) B) and D)

Question 16

The contract entered into with a client when an accountant is hired to perform a task is referred to as a[n] ______________.

Accepted Answer

A)   Accounting contract
B)   Accounting and auditing agreement
C)   Engagement letter
D)   Procurement letter
E)   Performance letterF) B) and E)
G) A) and E)

Question 17

Which of the following must be shown in order to establish a violation of Section 20(a)of the Securities Exchange Act?

Accepted Answer

Under Section 20(a),to establish liability,the plaintiff must show (1)there was a primary violation by a controlled person; (2)the defendant controlled the primary violator; and (3)the defendant participated in a meaningful way in the primary violation.

Question 18

When a federal law is at issue,state protection of an accountant-client privilege does not apply.

Accepted Answer

A) True 
 B)False

Question 19

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the effort by XYZ Bank to recover against Selena based upon Alice's default?

Accepted Answer

A)   The bank will be able to recover because it was in privity with Selena.
B)   The bank will be able to recover because it was in privity with Alice, and Alice was in privity with Selena.
C)   The bank will be able to recover because Selena was aware that her audit would be used to obtain a loan.
D)   The bank will not be able to recover because it cannot establish reliance upon Selena's work.
E)   The bank will not be able to recover because Selena and Alice had specifically agreed that the audit would only be used to obtain a loan from Alice's uncle.F) A) and E)
G) All of the above E

Question 20

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Accepted Answer

A)   The Reasonably Foreseeable Users Test
B)   The Restatement Test
C)   The Privity Test
D)   The Near Privity Test
E)   The Ultramares RuleF) A) and D)
G) C) and D)

Exam 11: Liability of Accountants and Other Professionals

Which of the following is true regarding the liability of accountants under the law of Canada?

Correct Answer
verified

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the action brought by ABC Bank against Selena based upon the loss of funds on Carl's loan?

Correct Answer
verified

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Correct Answer
verified

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Correct Answer
verified

Which of the following is false regarding compliance with GAAP and GAAS?

Correct Answer
verified

Which of the following is fraud without fraudulent intent?

Correct Answer
verified

When an audit is complete,an accountant usually issues a[n] _______________ letter stating his or her assessment of the company that was audited.

Correct Answer
verified

If Paul ______________ performed on the contract,he may be entitled to complete compensation minus the amount of damages caused by the breach.

Correct Answer
verified

Correct Answer
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The contract that Paul and Teresa entered into setting the scope of Paul's duties is referred to as a[n] ___________.

Correct Answer
verified

A financial statement is considered ____________ if no,or insubstantial,accounting procedures were used in the compilation of the document.

Correct Answer
verified

After a significant amount of responsibility for the bankruptcy of ____________ Corporation was placed on the firms that provided accounting services for the corporation,the role of accountants became a question of significant public interest.

Correct Answer
verified
A

What must be proven in order to recover damages under Section 10(b)of the Securities Exchange Act of 1934 and the corresponding SEC Rule 10b-5?

Correct Answer
verified
To recover damages under Section 10(b)an...
View Answer

For which of the following does the Securities Exchange Act impose liability?

Correct Answer
verified

Assuming that Teresa can establish that Paul failed to meet his contractual obligations,which of the following would be available to her?

Correct Answer
verified

The contract entered into with a client when an accountant is hired to perform a task is referred to as a[n] ______________.

Correct Answer
verified

Which of the following must be shown in order to establish a violation of Section 20(a)of the Securities Exchange Act?

Correct Answer
verified
Under Section 20(a),to establish liability,the plaintiff must show (1)there was a primary violation by a controlled person; (2)the defendant controlled the primary violator; and (3)the defendant participated in a meaningful way in the primary violation.

When a federal law is at issue,state protection of an accountant-client privilege does not apply.

Correct Answer
verified

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the effort by XYZ Bank to recover against Selena based upon Alice's default?

Correct Answer
verified
E

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Correct Answer
verified

Exam 11: Liability of Accountants and Other Professionals

Which of the following is true regarding the liability of accountants under the law of Canada?

Correct AnswerverifiedShow Answer

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the action brought by ABC Bank against Selena based upon the loss of funds on Carl's loan?

Correct AnswerverifiedShow Answer

What is the rationale behind the Restatement Test of accountant liability to third-parties?

Correct AnswerverifiedShow Answer

Which of the following is viewed as a middle ground test in regard to accounting liability to third-party users?

Correct AnswerverifiedShow Answer

Which of the following is false regarding compliance with GAAP and GAAS?

Correct AnswerverifiedShow Answer

Which of the following is fraud without fraudulent intent?

Correct AnswerverifiedShow Answer

When an audit is complete,an accountant usually issues a[n] _______________ letter stating his or her assessment of the company that was audited.

Correct AnswerverifiedShow Answer

If Paul ______________ performed on the contract,he may be entitled to complete compensation minus the amount of damages caused by the breach.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The contract that Paul and Teresa entered into setting the scope of Paul's duties is referred to as a[n] ___________.

Correct AnswerverifiedShow Answer

A financial statement is considered ____________ if no,or insubstantial,accounting procedures were used in the compilation of the document.

Correct AnswerverifiedShow Answer

After a significant amount of responsibility for the bankruptcy of ____________ Corporation was placed on the firms that provided accounting services for the corporation,the role of accountants became a question of significant public interest.

Correct AnswerverifiedA

What must be proven in order to recover damages under Section 10(b)of the Securities Exchange Act of 1934 and the corresponding SEC Rule 10b-5?

Correct AnswerverifiedTo recover damages under Section 10(b)an...View AnswerShow Answer

For which of the following does the Securities Exchange Act impose liability?

Correct AnswerverifiedShow Answer

Assuming that Teresa can establish that Paul failed to meet his contractual obligations,which of the following would be available to her?

Correct AnswerverifiedShow Answer

The contract entered into with a client when an accountant is hired to perform a task is referred to as a[n] ______________.

Correct AnswerverifiedShow Answer

Which of the following must be shown in order to establish a violation of Section 20(a)of the Securities Exchange Act?

Correct AnswerverifiedUnder Section 20(a),to establish liability,the plaintiff must show (1)there was a primary violation by a controlled person; (2)the defendant controlled the primary violator; and (3)the defendant participated in a meaningful way in the primary violation.

When a federal law is at issue,state protection of an accountant-client privilege does not apply.

Correct AnswerverifiedShow Answer

Under the Restatement Test,as discussed in the case in the text,Bily v.Arthur Young & Co.,which of the following is true regarding the effort by XYZ Bank to recover against Selena based upon Alice's default?

Correct AnswerverifiedE

Under which of the following tests is an accountant held liable to any third-party that was or should have been foreseen as a possible user of the accountant's work product and that,in fact,did use and rely upon that work product for a proper business purpose?

Correct AnswerverifiedShow Answer

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A

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To recover damages under Section 10(b)an...
View Answer

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Under Section 20(a),to establish liability,the plaintiff must show (1)there was a primary violation by a controlled person; (2)the defendant controlled the primary violator; and (3)the defendant participated in a meaningful way in the primary violation.

Correct Answer
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Correct Answer
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E

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