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Law
Q:
Reserved powers remain with the ________.
A) federal government
B) judiciary
C) state governments
D) U.S. Congress
Q:
The ________ was a document that restricted the newly created U.S. federal government from levying and collecting taxes, regulating commerce with foreign countries, and regulating interstate commerce.
A) U.S. Constitution
B) Declaration of Independence
C) Bill of Rights
D) Articles of Confederation
Q:
What is the accountant-client privilege?
Q:
What prohibition does the Sarbanes-Oxley Act impose on an accounting firm providing audit and nonaudit services to the same company?
Q:
The U.S. Supreme Court has held that there is an accountant-client privilege under federal law.
Q:
The Sarbanes-Oxley Act of 2002 makes it lawful for a registered public accounting firm to simultaneously provide audit and nonaudit investment banking services to a public company.
Q:
Registered accounting firms that audit more than 100 public companies annually are subject to inspection and review by the Public Company Accounting Oversight Board (PCAOB) once a year.
Q:
The SEC has oversight and enforcement authority over the Public Company Accounting Oversight Board (PCAOB).
Q:
All members of the Public Company Accounting Oversight Board (PCAOB) must be CPAs.
Q:
The Tax Reform Act of 1976 created the Public Company Accounting Oversight Board (PCAOB).
Q:
According to the Sarbanes-Oxley Act of 2002, any person who is employed by a public accounting firm that audits a client cannot be employed by that client as the chief executive officer (CEO) or chief financial officer (CFO) for a period of five years following the audit.
Q:
Federal law allows for discovery of an accountant's work papers in a federal case against the accountant's client.
Q:
________ provides that an accountant's work papers cannot be used against his or her client in a court action.
A) Work product immunity
B) The accountant-client privilege
C) The foreseeability standard
D) The Noerr Doctrine
Q:
The accountant-client privilege provides that ________.
A) only an accountant can serve as a witness for his or her client in a court action
B) an accountant's paperwork be used as prima facie evidence against his or her client in a court action
C) an accountant cannot be called as a witness against his or her client in a court action
D) an accountant does not enjoy work product immunity when his or her client is accused of gross negligence
Q:
Under the Sarbanes-Oxley Act, in order to audit a public company, ________.
A) only public accountants can serve as members of the audit committee
B) a public accounting firm must register with the PCAOB
C) a public accounting firm must assign as members of the audit committee only accountants who have worked closely with the company being audited for three years or longer
D) the accountant-client privilege must be recognized by the state legislature of the state in which the audit will occur
Q:
Which of the following is true of the Public Company Accounting Oversight Board (PCAOB)?
A) All members of the PCAOB must be CPAs.
B) The PCOAB was created by the Tax Reform Act of 1976.
C) The SEC has oversight and enforcement authority over the PCOAB.
D) The PCOAB does not have any disciplinary authority over accountants and accounting firms.
Q:
Give an account of the Private Securities Litigation Reform Act of 1995
Q:
Persons injured by a RICO violation can bring a private civil action against the violator and recover treble damages.
Q:
Accountants can be named as defendants in lawsuits that assert violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
Q:
The SEC has the independent power to criminally prosecute and imprison an offending party for violations of Section 32(a) of the Securities Exchange Act of 1934.
Q:
Accountants cannot be held criminally liable for material irregularities in financial statements prepared for registration statements.
Q:
The Private Securities Litigation Reform Act of 1995 replaced proportionate liability of the defendant with joint and several liability.
Q:
Ordinary negligence by an accountant is not a violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.
Q:
Only purchasers and sellers of securities can sue under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.
Q:
A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a) of the Securities Act of 1933.
Q:
The Securities Act of 1933 requires that before a corporation or another business sells securities to the public, the issuer must file a registration statement with the Securities and Exchange Commission (SEC).
Q:
Which of the following legislation provides for both criminal and civil penalties (including treble damages) for securities fraud by accountants and other professionals?
A) the Private Securities Litigation Reform Act of 1995
B) Section 32(a) of the Securities Exchange Act of 1934
C) the Tax Reform Act of 1976
D) the Racketeer Influenced and Corrupt Organizations Act
Q:
Which of the following is required to bring a civil action for securities fraud against a violator of RICO?
A) The accountant must not be a third-party independent contractor.
B) The defendant must first be criminally convicted in connection with the securities fraud.
C) The plaintiff must file the civil case before the government initiates a criminal action.
D) The defendant must first be tried for violation of Section 32(a) of the Securities Exchange Act of 1934.
Q:
The ________ Act of 1976 specifically imposes penalties and fines on accountants and others who prepare federal tax returns for the willful understatement of a client's tax liability.
A) Tax Reform
B) Racketeer Influenced and Corrupt Organizations
C) Private Taxation Litigation Reform
D) Uniform Securities
Q:
Which of the following legislation makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC?
A) Section 24 of the Securities Act of 1933
B) the Tax Reform Act of 1976
C) the Private Securities Litigation Reform Act of 1995
D) Section 10(b) of the Securities Exchange Act of 1934
Q:
________ is a rule that limits the liability of an accountant or other securities professional to his or her personal degree of fault.
A) Privity of contract
B) The due diligence defense
C) Proportionate liability
D) The Ultramares doctrine
Q:
Accountants can be found liable for violating Section 18(a) of the Securities Exchange Act of 1934 since ________.
A) they often file reports and other documents with the SEC on behalf of clients
B) CPAs are directly employed by the SEC
C) all companies require an accountant's approval before buying securities from the SEC
D) securities can only be bought through a CPA
Q:
In which of the following ways can an accountant avoid liability under Section 18(a) of the Securities Exchange Act of 1934?
A) if the accountant can show that the misleading statement was made to protect the company from Chapter 7 or Chapter 11 bankruptcy
B) if the accountant acted recklessly, rather than negligently
C) if the accountant had served as the plaintiff's employee within 180 days before the filing of the Section 18(a) action
D) if the accountant can show that the plaintiff had knowledge of the false statement when the securities were purchased or sold
Q:
Which of the following is true of Rule 10b-5?
A) Privity of contract is necessary for filing a lawsuit under this rule.
B) Civil lawsuits are not permitted under this rule.
C) Only purchasers and sellers of securities can sue under this rule.
D) Ordinary negligence is a violation of this rule.
Q:
________ is a law that prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security.
A) Section 11(a) of the Securities Act of 1933
B) Section 32(a) of the Securities Exchange Act of 1934
C) Section 10(b) of the Securities Exchange Act of 1934
D) Section 101 of the Uniform Securities Act
Q:
Which of the following can an accountant use as a defense to liability under Section 11(a) of the Securities Act of 1933?
A) the nolo contendere rule
B) the due diligence defense
C) theUltramares doctrine
D) the foreseeability standard
Q:
________ imposes civil liability on accountants and others for making misstatements or omissions of material facts in a registration statement or failing to find such misstatements or omissions.
A) Section 11(a) of the Securities Act of 1933
B) Section 10A of the Securities Exchange Act of 1934
C) Section 101 of the Uniform Securities Act
D) Section 18(a) of the Securities Exchange Act of 1934
Q:
Which of the following is true of Section 10A of the Securities Exchange Act of 1934?
A) It prohibits manipulative or deceptive practices in probate.
B) It is a due diligence defense an accountant can assert to avoid civil liability.
C) It imposes duties on auditors to detect and report illegal acts committed by their clients.
D) It imposes criminal liability on accountants for making material misstatements or omissions in their performance of non-audit services.
Q:
A verification of a company's books and records pursuant to federal securities laws, state laws, and stock exchange rules that must be performed by an independent CPA is known as a(n) ________.
A) probate
B) ademption
C) audit
D) deposition
Q:
Explain Section 552 of the Restatement (Second) of Torts.
Q:
Third parties usually cannot sue accountants for breach of contract.
Q:
A third party can bring a tort action against an accountant for constructive fraud.
Q:
Under the foreseeability standard, an accountant is liable even if he or she had no knowledge of the intended user of the audited financial statements.
Q:
The legal standard that holds an accountant liable for his or her negligence to any member of a limited class of intended users for whose benefit the accountant has been employed is Section 552 of the Restatement (Second) of Torts.
Q:
When an accountant has behaved negligently causing damage to a third party, the third party ________.
A) can claim privity of contract with the accountant
B) cannot bring a tort action against the accountant
C) cannot sue the accountant for breach of contract
D) cannot sue the accountant for constructive fraud
Q:
Which of the following is the broadest standard for holding accountants liable to third parties for negligence?
A) Section 552 of the Restatement (Second) of Torts
B) the foreseeability standard
C) the Ultramares doctrine
D) the due diligence doctrine
Q:
A rule that says that an accountant is liable for negligence to third parties who are foreseeable users of the client's financial statements is known as ________.
A) the foreseeability standard
B) the Ultramares doctrine
C) the due diligence defense
D) Section 552 of the Restatement (Second) of Torts
Q:
Which of the following standards have most states adopted regarding accountant liability for negligence to third parties?
A) the Ultramares doctrine
B) the foreseeability standard
C) Section 552 of the Restatement (Second) of Torts
D) the due diligence standard
Q:
Which of the following rules provides that an accountant is liable only for negligence to third parties who are members of a limited class of intended users of the client's financial statements?
A) Section 552 of the Restatement (Second) of Torts
B) the foreseeability standard
C) the Ultramares doctrine
D) the due diligence defense
Q:
In Ultramares Corporation vs. Touche, the court found the defendant accounting firm not liable for negligence due to the plaintiff's lack of privity of contract or a privity-like relationship with the defendant.
Q:
The Ultramares doctrine is the broadest standard for holding accountants liable to third parties for negligence.
Q:
________ is a rule that says that an accountant is liable only for negligence to third parties who are in privity of contract or in a privity-like relationship with the accountant.
A) The foreseeability standard
B) The Ultramares doctrine
C) The due diligence defense
D) Section 552 of the Restatement (Second) of Torts
Q:
When does an auditor submit a disclaimer of opinion? What is the significance of an auditor's opinion?
Q:
Probate is defined as the verification of a company's books and records by a certified accountant.
Q:
Violations of GAAPs or GAASs, or IFRSs, if applicable, are prima facie evidence of negligence, although compliance does not automatically relieve the accountant of such liability.
Q:
Constructive fraud is defined as the intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage.
Q:
Accountants can be held liable for negligence in preparing unaudited financial statements.
Q:
An adverse opinion is usually issued when an auditor determines that a company has materially misstated certain items on its financial statements.
Q:
A disclaimer of opinion is a corporate auditing exemption that effectively prohibits an auditor from accessing a high-priority portion of the company's financial records.
Q:
The issuance of an unqualified opinion means that the company's financial statements are not in conformity with GAAPs.
Q:
A qualified opinion is the most favorable opinion that an accountant can render.
Q:
An accountant's failure to follow GAASs when conducting audits constitutes negligence.
Q:
Pursuant to federal securities laws, an audit must be performed by a CPA who works as the chief executive officer (CEO) or chief financial officer (CFO) of the company being audited.
Q:
A formal entrance into a contract between a client and an accountant is called an abatement.
Q:
Generally Accepted Auditing Standards (GAASs) are established by the American Institute of Certified Public Accountants.
Q:
The Financial Accounting Standards Board (FASB) issues new GAAP rules and amends existing ones.
Q:
Generally Accepted Accounting Principles (GAAPs) specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements.
Q:
Limited partners are personally liable for the debts and obligations of the limited liability partnership.
Q:
Most public accounting firms operate as limited liability partnerships (LLPs).
Q:
A person who practices as an accountant but is not certified is referred to as a public accountant.
Q:
________ is defined as the intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage.
A) An unqualified opinion
B) Actual fraud
C) A disclaimer of opinion
D) Constructive fraud
Q:
A formal entrance into a contract between a client and an accountant is known as an ________.
A) abatement
B) arraignment
C) easement
D) engagement
Q:
Which of the following opinions is necessary for a company to avoid unfavorable consequences (for example, not being able to sell its securities to the public)?
A) an adverse opinion
B) a qualified opinion
C) a disclaimer of opinion
D) an unqualified opinion
Q:
If an auditor makes a disclaimer of opinion, this means that the auditor ________.
A) generally agrees that the company's financial records accurately represent the company's financial position, but notes a few departures from GAAPs
B) disagrees that the company's financial records accurately represent the company's financial position
C) cannot draw a conclusion about the accuracy of the company's financial records, generally due to a lack of sufficient information about the records
D) agrees that the company's financial records accurately represent the company's financial position
Q:
Which of the following opinions would an auditor make for a company that has materially misstated certain items on its financial statements?
A) an unqualified opinion
B) an adverse opinion
C) a qualified opinion
D) a disclaimer of opinion
Q:
Which of the following is the most favorable opinion an auditor can give a company following an audit?
A) an unqualified opinion
B) a disclaimer of opinion
C) an adverse opinion
D) a qualified opinion
Q:
A(n) ________ is an auditor's opinion that the financial statements are fairly represented except for, or subject to, a departure from GAAPs, a change in accounting principles, or a material uncertainty.
A) unqualified opinion
B) qualified opinion
C) adverse opinion
D) disclaimer of opinion
Q:
A(n) ________ opinion is an auditor's opinion that the company's financial statements fairly represent the company's financial position, the results of its operations, and the change in cash flows for the period under audit, in conformity with generally accepted accounting principles.
A) disclaimer of
B) adverse
C) qualified
D) unqualified
Q:
Which of the following is true of an auditor of a corporation?
A) The auditor must be an independent certified public accountant.
B) The auditor cannot use information about the corporation from third parties.
C) The auditor cannot inspect the corporation's real property unless he or she is closely associated with the company.
D) The auditor must provide a qualified opinion wherever possible, since it helps the company in its business practices.
Q:
Monica is an accountant with Mildred & Lane Inc., and she has recently been asked to visit Maine Manufacturers to survey their financial records, assess their compliance with federal and state laws, and provide an opinion reflecting the state of the company's financial records. Monica's assessment of the financial records of Maine Manufacturers is called a(n) ________.
A) probate
B) audit
C) arraignment
D) easement