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Exam 41: Liability of Accountants Other Professionals

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Question 21

Multiple Choice

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Lebron, an attorney, allows a statute of limitations to lapse on a claim by Midwest Metal Fabrication Company, a client. Lebron

A) can be held liable for malpractice.
B) has violated an ethical standard but cannot be held liable.
C) is subject to criminal penalties under the statute of limitations.
D) will be automatically disbarred.

E) A) and D)
F) None of the above

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Question 22

Multiple Choice

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Estes, an accountant, contracts to perform services for Frasier. In performing those services, Estes uncovers a suspicious financial transaction. Estes is most likely not liable if he

A) acted negligently in failing to discover the transaction sooner.
B) conceals the discovery and otherwise finishes the work.
C) investigates and reports the discovery to Frasier.
D) obtains restitution from the perpetrator without Frasier's knowledge.

E) A) and B)
F) A) and C)

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Question 23

True/False

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A client's negligence is never a defense to a charge of negligence against an accountant.

Jerzy is an accountant whose clients include Kopper Kettle Restaurants, Inc. For a violation of securities laws, Jerzy may be subject to

Craig is an accountant whose clients include Digby Excavation Corporation. Elbert is Craig's attorney. Under the common law and by statute in many states, working papers that Craig develops when preparing financial reports for Digby are owned by

Feder prepares federal corporate income tax returns for Giant Stores, Inc., and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Feder may be liable for

Flynn, an accountant, helps Grange Supply Company prepare and file a false federal corporate income tax return. Under the In?ternal Revenue Code, this is

A professional's gross negligence in performing a duty constitutes actual fraud.

An attorney may be liable in negligence to any third party who the attorney knows will rely on the attorney's work.

Marquis Company's liabilities exceed its assets, but the firm's employees falsify its books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to prepare a balance sheet, which is certified to show a positive net worth. Pure Credit Corporation relies on the balance sheet to make a loan to Marquis. When the firm defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the accounting firm is most likely

Longway Trucking, Inc., files a suit against Midge, an accountant, under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. To succeed in recovering damages, Longway must show that Midge

Lulu, an accountant, conducts an audit of Microstuff Toys, Inc. After the conclu?sion of the audit, the working papers created in preparing the audit must be

An accountant is not liable for a misstatement to a purchaser of securities who knew of the misstatement but invested anyway.

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Pace is an attorney, whose clients include Quikfeet Running Shoes Company. Unless Quikfeet has violated securities law, the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Lacy is an accountant who prepares her clients' tax returns. Muff is not an accountant, but he also prepares tax returns for clients. Under the In?ternal Revenue Code, liability for preparing a false return may be im?posed on

Meri, an accountant, includes a false statement in a report for Novelty Paper Products, Inc. (NPPI) that is filed with the Securities and Exchange Com?mission. When Otho buys stock in NPPI and loses money on the investment, he files a suit against Meri, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Meri can show that she

Malpractice is professional negligence.

Rex, an accountant, enters into a contract to provide services to Sofi. Rex does not finish the work within the contract's deadline. Sofi pays a penalty as a result of the missed deadline and hires Trey to complete the job. Rex is most likely liable for

Doug is an accountant whose clients include Everyday Products, Inc. (EPI) . Under the Ultramares rule, if Doug is negligent in his work for EPI, he could be liable to