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Exam 46: Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals

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Question 1

True/False

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Usually,only clients sue professionals under the securities law.

A) True
B) False

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Question 2

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Which of the following is authorized to conduct periodic inspections of nonprivate company auditors in order to assess whether they are complying with the requirements of the Sarbanes-Oxley Act?

A) The Public Company Accounting Oversight Board
B) The Securities Exchange Commission
C) The Federal Trade Commission
D) The Internal Revenue Service

E) None of the above
F) All of the above

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A

Question 3

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Under Section 11 of the Securities Act of 1933,an underwriter is liable for errors in the entire Securities Act registration statement because an underwriter is an expert.

Judge Blue is evaluating a case of professional negligence involving a claim against an auditor.Where will Judge Blue look to determine what the ordinary standard of care is for the auditing profession?

West & Co. ,a large CPA firm,was engaged by Sand Corp.to audit its financial statements.West issued an unqualified opinion on Sand's financial statements.Reed is a securities investor who relied upon the statements when purchasing Sand stocks.After incurring major losses on Sand stocks,Reed accused Sand of making negligent misrepresentations in the financial statements.West was not aware of the misrepresentations nor was it negligent in performing the audit.If Reed sues West for damages,based on Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934,West will:

If a state offers a granted privilege,like accountant-client privilege then the federal courts in that jurisdiction will also allow that privilege.

One of the elements necessary to hold a CPA liable to a client for conducting an audit negligently is that the CPA:

Which of the following is correct concerning the professional-client privilege and working papers produced by an auditor while auditing the records of a client?

A professional is not liable for breach of contract if the:

A client may receive _____ damages for a breach of contract or negligence.

If a client establishes fraud against a professional,he/she is more likely to receive:

Kaye Piper buys 1,000 common shares of Sullivan Corp.in an offering of shares made pursuant to a Rule 506 exemption from the registration provisions of the Securities Act.For this purchase,Kaye relied on financial statements audited by Armer & Lander LLP (AL),a CPA firm.The statements materially overstated Sullivan's inventory and earnings because AL's staff auditors counted inventory boxes and still did not confirm whether any of the boxes have inventory in them.Thirty percent of those boxes were empty.Does AL have potential liability to Kaye under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934 or Section 12(a)(2)of the Securities Act of 1933?

Who amongst the following is an "expert" under Section 11 of the Securities Act of 1933?

Mr.Blue is a very good accountant at Supermart Inc.Mr.Blue acts with great care and accuracy.But with changing laws and various inaccurate information provided to him by other employees,Mr.Blue is responsible for a Supermart Inc.owing the IRS $50,000.The CEO of Supermart Inc.wants to discharge and sue Mr.Blue for failure to excise professional care (i.e. ,professional negligence).Mr.Blue based on facts is liable for professional negligence and can be discharged and sued for the mistake.

In which of the following statements concerning a CPA firm's action is scienter or its equivalent absent?

A person who is injured in his/her business or property by reason of a professional's conduct or participation,directly or indirectly,in an enterprise's affairs through a pattern of racketeering activity may recover _____ from the professional.

An accountant can be required to bring his/her working papers into court and to testify as to matters involving the client's tax records and discussions with the client regarding tax matters.

Under Section 11 of the Securities Act of 1933,in order to establish the liability of an auditor who prepared a defective registration statement,a plaintiff must prove that:

If a stockholder sues a CPA for common law fraud based on false statements contained in the financial statements audited by the CPA,which of the following,if present,would be the CPA's best defense?

Proof of aiding and abetting another person's securities violation is not sufficient misconduct to overcome the privity requirement of Securities Act Section 12(a)(2).