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Q:
The _____ exercise(s) the greatest control over agency behavior.
A. President
B. states
C. Congress
D. courts
Q:
An individual or organization seeking judicial review of an agency action must first demonstrate that:
A. the agency action being challenged is reviewable.
B. the required consent orders have been signed.
C. other administrative remedies have not been used.
D. the individual or organization has no standing to sue.
Q:
Cases in administrative proceedings are heard by a(n):
A. adjudicating chairperson.
B. administrative law judge.
C. executive judge.
D. judicial commissioner.
Q:
Respondents who sign consent orders:
A. agree to discontinue the business practice that triggered the agency action.
B. admit to their wrongdoing.
C. retain all rights to judicial review.
D. need not accept sanctions imposed by the agency.
Q:
_____ agencies are required to prepare cost-benefit and least-cost analyses for all major proposed rules and to submit this information to the Office of Management and Budget (OMB) for review prior to seeking public comments.
A. Independent
B. State
C. Public interest
D. Executive
Q:
_____ rulemaking procedures provide limited rights to interested parties to cross-examine agency witnesses.
A. Formal
B. Executive
C. Informal
D. Hybrid
Q:
Who, among the following, is NOT present during administrative adjudications?
A. Respondent
B. Jury
C. Complainant
D. Judge
Q:
The process by which agency _____ rules are promulgated is highly regulated by the APA and closely scrutinized by the courts.
A. procedural
B. interpretive
C. administrative
D. legislative
Q:
A rule made by an agency through the informal rulemaking method can become effective only:
A. 45 days after the publication of the rule in its final form in the Federal Register.
B. 45 days after the publication of a "Notice of Proposed Rulemaking" in the Federal Register.
C. 30 days after the publication of the rule in its final form in the Federal Register.
D. 30 days after the publication of a "Notice of Proposed Rulemaking" in the Federal Register.
Q:
An agency rule created through a(n) _____ rulemaking method reduces the chances of voluntary compliance.
A. informal
B. executive
C. democratic
D. hybrid
Q:
An agency's legislative rules are considered as binding in nature and carry the full force and effect of law, provided:
A. they are in consonance with the Administrative Procedure Act only.
B. they are in consonance with the Constitution but not necessarily in consonance with the enabling legislation.
C. they are in consonance with the enabling legislation, but not necessarily with the Constitution.
D. they are in consonance with the enabling legislation, the APA as well as the Constitution.
Q:
Acme Corp. asserted in a magazine advertisement that its electric-powered bunion sander will remove bunions from users' feet twice as fast as any other bunion sander on the market today. As part of an investigation into whether this advertising claim was deceptive, the Federal Trade Commission (FTC) issued a subpoena demanding that Acme produce all of its records regarding tests it has performed to substantiate the performance claim for the bunion sander. The subpoena also demanded production of all records of tests to substantiate any performance claims made by Acme during the past four years regarding each of the 32 other products manufactured by Acme. Four of these other products were electric-powered products in the personal care category. The remaining products were either lawn care products or nonelectric tools. The strongest argument that Acme may make concerning the subpoena is that the subpoena:
A. is invalid because the FTC investigation is not being conducted for a legitimate purpose.
B. need not be obeyed because it violates Acme's Fifth Amendment privilege against compulsory testimonial self-incrimination.
C. need not be obeyed to its fullest extent because the portion dealing with records on most of Acme's other products is not sufficiently specific and is unreasonably burdensome.
D. is invalid unless the FTC satisfies the "probable cause" standard required by the Fourth Amendment for the issuance of a search warrant.
Q:
The Internal Revenue Service (IRS) has recently issued a subpoena duces tecum to Values Corp. The IRS wants access to the last five year's tax returns and related documents of Values to ensure that Values has met all its tax liabilities. Values claims that all its tax papers are in order and IRS's motive is to harass political opponents of the incumbent administration (Values was one of the top 100 donors during the last election year). The strongest argument that Values may make concerning the subpoena is that the subpoena:
A. is invalid because the IRS investigation is not being conducted for a legitimate purpose.
B. need not be obeyed because it violates Values' Fifth Amendment privilege against compulsory testimonial self-incrimination.
C. need not be obeyed to its fullest extent because it is not sufficiently specific and is unreasonably burdensome.
D. is invalid unless the IRS satisfies the "probable cause" standard required by the Fourth Amendment for the issuance of a search warrant.
Q:
Agencies that invoke a power to search and seize evidence as part of an effort to prove a regulatory violation are subject to what constitutional prohibitions?
A. First Amendment Freedom of Press
B. Fourth Amendment Protection against Unreasonable Searches
C. Tenth Amendment State Powers
D. Second Amendment Right to Bear Arms
Q:
All agency rules are compiled and published in the:
A. Code of State Regulations.
B. Code of Corporation Regulations.
C. Code of Specific Regulations.
D. Code of Federal Regulations.
Q:
An agency's interpretive rules:
A. have the full force and effect of law.
B. specify how the agency will conduct its hearings.
C. are not binding on businesses and the courts.
D. are seldom heeded by business because of their advisory nature.
Q:
Which of the following is true about an agency's informal power?
A. An agency's informal powers enjoy the full force and effect of law.
B. An agency's informal powers have the same legal force of formal agency regulations.
C. An agency's informal powers and its formal actions are subject to similar constraints.
D. An agency's informal powers play a major role in shaping the behavior of regulated industries.
Q:
An administrative agency is most likely to use a subpoena to compel information from:
A. public interest groups.
B. businesses subject to regulation.
C. customers or competitors.
D. other regulatory agencies.
Q:
Assume that the Federal Trade Commission (FTC) is conducting a hearing. In order to obtain certain documents relevant to its investigation, the FTC need not:
A. ensure that the investigation is being conducted for a legitimate purpose.
B. confirm that the information it seeks is relevant to its purpose.
C. possess "probable cause" in support of regular search warrants.
D. ensure that the subpoena it issues adequately describes the information it seeks.
Q:
Which of the following is an accurate statement about powers delegated to and possessed by administrative agencies?
A. The most important administrative agencies typically possess rulemaking powers but lack adjudicatory powers.
B. An agency's rulemaking power would be classified as discretionary power rather than ministerial.
C. Modern courts tend not to uphold the validity of broad delegations of power by Congress to administrative agencies.
D. Most administrative agencies are given restricted powers to comply with the constitutional principle of separation of powers.
Q:
Which of the following powers of administrative agencies is largely ministerial in nature?
A. Performing routine duties that are imposed by law.
B. Conducting proceedings to determine regulatory violations.
C. Creating rules that specify how the agency will conduct itself.
D. Gathering information about business practices and activities.
Q:
Which of the following agencies is an executive agency?
A. The Environmental Protection Agency
B. The Consumer Product Safety Commission
C. The National Labor Relations Board
D. The Internal Revenue Service
Q:
One of the founding principles of our government is separation of powers. How do administrative agencies tend to conform to, or violate this principle?
A. They tend to violate this principle because they perform all three functions of government.
B. They tend to conform to this principle because most commissioners or board members are appointed by the President.
C. They tend to conform to this principle because they only follow the law, and do not make any law.
D. They tend to violate this principle because they are created by Congress through passing of enabling legislations.
Q:
The Department of Homeland Security:
A. is an executive administrative agency.
B. is a non-profit organization.
C. is a cabinet-level department.
D. has no effect on governmental organization.
Q:
Commissioners or board members of which of the following can be removed only for cause?
A. The Occupational Safety and Health Administration
B. The Food and Drug Administration
C. The Internal Revenue Service
D. The Interstate Commerce Commission
Q:
Which of the following is an executive administrative agency?
A. The National Labor Relations Board
B. The Equal Employment Opportunity Commission
C. The Internal Revenue Service
D. The Interstate Commerce Commission
Q:
The difference between executive agencies and independent agencies is that:
A. independent agency heads are appointed by Congress.
B. independent agency heads serve fixed terms in office.
C. executive agency heads are appointed by executives of corporations.
D. executive agency heads can be removed by Congress.
Q:
The _____ was the first administrative agency created by Congress.
A. Interstate Commerce Commission
B. Occupational Safety and Health Administration
C. Food and Drug Administration
D. Internal Revenue Service
Q:
Administrative agencies are what kind of bodies?
A. Commercial
B. Government
C. International
D. Corporate
Q:
Courts tend to approve broad delegations of power by Congress to an administrative agency when Congress has:
A. effectively isolated the judicial powers of the agency.
B. changed the enabling legislation appropriately.
C. expressed an intelligible principle to guide the agency's actions.
D. received approval of the President for such delegation of power.
Q:
Which of the following is true regarding the principle of separation of powers?
A. The Constitution seeks to ensure that governmental power remains accountable to the public will.
B. The congressional delegation of legislative power to an agency in its enabling legislation may never be challenged.
C. Congress is allowed to create an administrative agency only if Congress, rather than the President, will appoint the commissioners or board members of the agency.
D. The President can allow the Supreme Court to overturn very broad delegation of power to administrative agencies.
Q:
When a court reviews formal agency adjudications or formal agency rulemaking, the only agency findings that will be overturned are those that were unsupported by substantial evidence.
Q:
Congress enacted the Freedom of Information Act (FOIA) to enable private citizens to obtain access to documents in the government's possession.
Q:
Although agency "captives" and agency "shadows" are different phenomena, they contribute to the same arguable result: an increase in agency independence.
Q:
The courts exercise the greatest control over agency behavior because all agency actions are subject to judicial review.
Q:
Ms. Bunny has been denied disability by the Social Security Administration (SSA). In her denial letter it indicates she has the right to an appeal before an agency law judge. Ms. Bunny decides to sue in district court. Her case will likely be dismissed for failing to be ripe.
Q:
Agency action may be overturned if it is unsubstantiated by the facts before the agency when it acted.
Q:
The executive branch of government exercises significant control over agency action through the Office of Management and Budget (OMB).
Q:
Although an administrative agency's interpretive rules do not have the force of law, its legislative rules do.
Q:
Informal rulemaking consists of publishing notice of a new rule in the Federal Registrar and allowing interested parties an opportunity to comment on the rule.
Q:
Constitutional procedural safeguards such as the exclusionary rule protect respondents of the administrative adjudication process.
Q:
Many agency proceedings are settled by a consent order after completion of the adjudication process.
Q:
In case a particular agency enabling legislation provides for stricter procedures than the Administrative Procedure Act (APA), those procedures will be considered void.
Q:
Most information-gathering efforts by administrative agencies are considered so intrusive as to amount to a prohibited search and seizure.
Q:
In recent years, courts have often struck down as unconstitutional, broad Congressional delegations of power to administrative agencies.
Q:
Separation of power issues seldom arise with regard to administrative agencies because agencies owe their existence to the absolute constitutional right of the legislative branch to delegate its power as it sees fit.
Q:
The Securities and Exchange Commission (SEC) is an example of an independent agency.
Q:
The Administrative Procedure Act (APA) was passed by Congress to standardize federal agency procedure.
Q:
Little LLP, a CPA firm, has been doing financial statement auditing for Honesty Corp. for the last 10 years. While auditing last year's financial statements of Honesty, Little finds out that Honesty has overstated assets by 12 percent and revenues by 19 percent to make up for the huge losses it incurred. When Little informed the management of Honesty about this illegal act, Honesty's management threatened to cancel Little's contract with Honesty and demanded back the personal records and working papers from Little. Should Little give them back? Who owns them? Who has right of access to them? If Little is forced by Honesty to destroy those papers, under which Act can Little be punished?
Q:
Administrative agencies typically possess a broad mix of governmental powers resembling those associated with the three traditional branches of government.
Q:
Administrative agencies are created by orders from the courts.
Q:
The "fourth branch" of government is not bound by basic constitutional guarantees such as due process, equal protection, and freedom of speech, just as the three traditional branches are.
Q:
Administration action is subject to basic constitutional tests.
Q:
According to Sarbanes-Oxley Act, how long must audit and review working papers be retained?
A. 2 years
B. 7 years
C. 10 years
D. 20 years
Q:
Austin LLP, a CPA firm, audits financial statements of Cooley Company. Cooley tells Austin that the statements will be used to sell preferred shares in a registered offering under the Securities Act of 1933. Austin is concerned about its potential liability under Section 11 of the Securities Act of 1933 for mistakes in the audited financial statements. Discuss Austin's due diligence defense under Section 11.
Q:
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?
Q:
Tuff Ruff LLP, a CPA firm, is engaged to audit the financial statements of Stuvver Company. During the audit, Tuff Ruff discovers that Stuvver has been illegally dumping toxic chemicals on a 40-acre plot of land behind its main manufacturing plant. What is Tuff Ruff's public duty regarding Stuvver's illegal dumping?
Q:
The Private Securities Litigation Reform Act of 1995 requires an auditor to:
A. report to the Securities and Exchange Commission a client's illegal act that has a material impact on the financial statements of the client when the client has failed to take remedial action.
B. resign from an audit engagement when the client commits an illegal act that has a material impact on the financial statements of the client and the client has failed to take remedial action.
C. inform a client's shareholders of the client's illegal act that has a material impact on the financial statements of the client when the client has failed to take remedial action.
D. force a client to disclose to its shareholders and to the Securities and Exchange Commission a client's illegal act that has a material impact on the financial statements of the client when the client has failed to take remedial action.
Q:
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. Working papers are owned by the client.
B. Working papers may be transferred to another auditor without permission of the client.
C. The client does not have a right of access to the working papers.
D. The professional-client privilege usually belongs to the client.
Q:
Mr. Green is a CPA who has been hired to perform an audit of a publically traded corporation. As part of his duties Mr. Green comes into possession of sensitive materials of the corporation. After the audit is over what should Mr. Green do with the materials?
A. Return all of them to the corporation
B. Keep them until asked for them
C. Turn the documents over to the Secretary of State's Office
D. Send the documents electronically to the SEC
Q:
Individuals convicted of a RICO (Racketeer Influenced and Corrupt Organizations Act) violation may be:
A. fined up to $250,000 without an imprisonment.
B. fined up to $150,000 and imprisoned up to 25 years.
C. fined up to $150,000 without an imprisonment.
D. fined up to $250,000 and imprisoned up to 20 years.
Q:
Under the Racketeer Influenced and Corrupt Organizations Act (RICO), a pattern of fraud is proved by the commission of:
A. two predicate offenses within a 10-year period.
B. five predicate offenses within a 20-year period.
C. two predicate offenses within a 20-year period.
D. five predicate offenses within a 10-year period.
Q:
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.
A. only part of the damage for which the professional is responsible
B. five times his/her actual damages
C. three times his/her actual damages
D. only his/her actual damages
Q:
An individual may be fined up to _____ and imprisoned for up to _____ for a criminal violation of the 1934 Act.
A. $15 million; 10 years
B. $5 million; 10 years
C. $15 million; 20 years
D. $5 million; 20 years
Q:
A professional has duty to perform their contractual duties to what standard for his/her client?
A. To ensure all parties make a profit
B. To perform as an ordinary prudent person in the profession would perform
C. To ensure that all shareholders are happy with the work the professional has performed
D. To the standards of the International Labor Agreement (ILA)
Q:
Brown, a CPA, helped Cook organize a partnership that was actually an abusive tax shelter. Brown induced clients to participate by making false statements concerning the eligibility of deductions and tax credits. As a result of these activities, Cook derived $100,000 gross income and Brown derived $50,000 gross income. According to federal tax law, what is Brown's penalty for promoting this abusive tax shelter?
A. $100,000
B. $10,000
C. $1,000
D. $50,000
Q:
Which of the following is correct concerning qualified opinions, disclaimers of opinions, and unaudited financial statements?
A. When an auditor issues a qualified opinion regarding audited financial statements, the auditor is relieved of responsibility for mistakes in financial statements only to the extent the qualification is specifically expressed in the opinion letter.
B. An auditor who, due to the limited scope of an audit, disclaims any opinion as to the ability of the financial statements to present the financial position of a company has no liability for misstatements or omissions in the financial statements.
C. Opinion letters stating that an auditor totally disclaims his/her liability for false and misleading financial statements excuse an accountant from the duty to exercise ordinary skill and care.
D. An auditor who prepares unaudited statements automatically creates a disclaimer as to the accuracy of those statements.
Q:
Nast Corp. orally engaged Baker & Co., CPAs, to audit its financial statements. The management of Nast informed Baker that it suspected the accounts receivable were materially overstated. Although the financial statements audited by Baker did, in fact, include a materially overstated accounts receivable balance, Baker issued an unqualified opinion. Nast relied on the financial statements in deciding to obtain a loan from Century Bank to expand its operations. Nast has defaulted on the loan and has incurred a substantial loss. If Nast sues Baker for negligence in failing to discover the overstatement, Baker's best defense would be that:
A. Baker did not perform the audit recklessly or with an intent to deceive.
B. Baker was not in privity of contract with Nast.
C. Baker performed the audit in accordance with generally accepted auditing standards.
D. Nast orally engaged Baker and no engagement letter had been signed by Baker.
Q:
The maximum penalty for a criminal violation of the 1933 Act is a:
A. $20,000 fine and one year imprisonment.
B. $10,000 fine and five years' imprisonment.
C. $20,000 fine and five years' imprisonment.
D. $10,000 fine and one year imprisonment.
Q:
Gold, CPA, rendered an unqualified opinion on the 1987 financial statement of Eastern Power Co. Egan purchased Eastern bonds in a public offering subject to the Securities Act of 1933. The registration statement filed with the SEC included the financial statements. Gold is being sued by Egan under Section 11 of the Securities Act of 1933 for the misstatements contained in the financial statements. To prevail, Egan must prove:
A. scienter: no; reliance: no
B. scienter: no; reliance: yes
C. scienter: yes; reliance: no
D. scienter: yes; reliance: yes
Q:
Who amongst the following can be held liable under Section 12(a)(2) of the Securities Act of 1933?
A. A consultant who is hired by a company making a public distribution of securities to improve performance.
B. An auditor who issues an opinion regarding financial statements of a company making a public distribution of securities.
C. An accountant in the accounts division of a publicly traded company which is issuing new securities to the public.
D. An underwriter who is involved in issuance of new securities to the public by a publicly traded company.
Q:
Hamish invested in the securities of the ABC Corporation (ABC). He lost a great deal of money on those securities after ABC's president admitted that financial statements about the profitability of ABC had been materially exaggerated. Andy Accountant (AA) had audited those statements and had issued an unqualified opinion that they complied with GAAS and GAAP. Hamish has sued AA using Section 10(b) of the Securities Exchange Act of 1934 as the legal basis of his/her suit. To succeed, Hamish must prove that:
A. AA acted with scienter.
B. Hamish was in privity of contract with ABC or AA.
C. AA acted negligently.
D. AA's actions have a connection with intrastate commerce.
Q:
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:
A. lose, because Reed relied upon the financial statements.
B. lose, because the statements contained negligent misrepresentation.
C. prevail, because some element of scienter must be proved.
D. prevail, because Reed was not in privity of contract with West.
Q:
For proving liability of a professional under _____, the plaintiff need not prove reliance on the wrongful conduct.
A. Section 17(a) of the Securities Act of 1933
B. Section 10(b) of the Securities Exchange Act of 1934
C. Section 18 of the Securities Exchange Act of 1934
D. Section 12(a)(2) of the Securities Act of 1933
Q:
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:
A. he/she purchased securities issued pursuant to the defective registration statement.
B. the auditor was negligent in preparing the registration statement.
C. the auditor acted with scienter in preparing the registration statement.
D. he/she had privity of contract with the auditor.
Q:
_____ imposes liability on underwriters and experts for misstatements or omissions of material fact in Securities Act registration statements.
A. Section 18 of the Securities Exchange Act of 1934
B. Section 12(a)(2) of the Securities Exchange Act of 1934
C. Section 17(b) of the Securities Act of 1933
D. Section 11 of the Securities Act of 1933
Q:
Who amongst the following is an "expert" under Section 11 of the Securities Act of 1933?
A. A consultant who is an independent director of a company making a public distribution of securities.
B. An auditor who issues an opinion regarding financial statements of a company making a public distribution of securities.
C. An accountant in the accounts division of a publicly traded company which is issuing new securities to the public.
D. An underwriter who is involved in issuance of new securities to the public by a publicly traded company.
Q:
Under Section 11 of the Securities Act of 1933, an auditor who issues an opinion regarding financial statements of a company making a public distribution of securities can be held liable for errors in the expertised portions of the:
A. registration statement.
B. annual 10-K report.
C. 8-K current report.
D. proxy statements.
Q:
For proving liability of a professional under _____, privity of contract between the plaintiff and the defendant is required.
A. Section 12(a)(2) of the Securities Act of 1933
B. Section 18 of the Securities Exchange Act of 1934
C. Section 17(a) of the Securities Act of 1933
D. Section 11 of the Securities Exchange Act of 1934
Q:
Under the Restatement (Second) of Torts, which of the following nonclients may sue an accountant for professional negligence?
A. A securities investor whose use of the financial statements prepared by the accountant to purchase common shares was foreseeable by the accountant.
B. A bank that was not known to the accountant and whose use of the financial statements was not foreseen, but whose use of the financial statements was foreseeable.
C. A bank that was known to the accountant but used the financial statements prepared by the accountant for a purpose that was not foreseen.
D. A creditor who was not known to the accountant but who used the financial statements for the same purpose as the bank whose use of the statements was known to the accountant.