Question 1

Reliant Funds, Inc., files a suit against Saul, 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, Reliant Funds must show that Saul​

Accepted Answer

To prevail in a lawsuit under Rule 10b-5 of the Securities and Exchange Commission, a plaintiff must prove that the defendant acted with scienter, or intent to deceive, manipulate, or defraud. The other answer choices are irrelevant to the plaintiff's case.

Question 2

Randi, an accountant, includes a false statement in a report for Social Media Marketing, Inc., that is filed with the Securities and Exchange Commission. When Theo buys stock in Social Media and loses money on the investment, he files a suit against Randi, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Randi can show that she​

Accepted Answer

To avoid liability for fraud under the 1934 Securities Exchange Act, Randi must prove that she had no knowledge that her statement was false. This is because the key element of fraud is the intent to deceive, and Randi's lack of knowledge of the falsity of her statement would mean she did not have this intent. None of the other options provided would be effective defenses against liability.

Question 3

Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant, but he also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on​

Accepted Answer

Both Beck and Cole may be liable for preparing a false tax return under the Internal Revenue Code. The code applies to anyone who aids or assists in the preparation of a false return, not just certified accountants. As both individuals prepare tax returns for clients, they could be held responsible if the return contains false information.

Question 4

Finola, a certified public accountant, provides accounting services to Global Trade Corporation. The services include preparing Global Trade's financial reports and issuing opinion letters based on the reports. In 2014, Global Trade falls into serious financial trouble, but neither Finola's reports nor her opinion letters indicate this situation. Relying on Finola's portrayal of Global Trade's financial situation, the firm borrows a large sum of money to build a new shipping facility. In lending Global Trade the money, Harbor City Bank relies on Finola's opinion letter. Finola is aware of this reliance. If Finola did not engage in intentional fraud but was negligent, what is her potential liability?​

Accepted Answer

The answer of Finola, a certified public accountant, provides accounting...

Question 5

Hernando, an accountant, helps Industrial Equipment & Supplies Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is​

Accepted Answer

Preparing and filing a false federal corporate income tax return is a felony punishable by a fine and imprisonment under the Internal Revenue Code.

Question 6

Cathy is an accountant with Discount Retail Corporation. Efrem buys Discount Retail stock and loses money on the investment. To recover from Cathy under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove​

Accepted Answer

To recover under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove fraud, reliance, materiality, causation, and scienter. "Fraud" means a misrepresentation or omission of material fact. "Reliance" means that the plaintiff reasonably relied on the misrepresentation or omission. "Materiality" means that the misrepresentation or omission is significant enough to affect a reasonable investor's decision-making process. "Causation" means that the misrepresentation or omission caused the plaintiff's loss. "Scienter" means that the defendant acted with intent to deceive, manipulate, or defraud. In this case, Efrem must prove that Cathy, as an accountant with Discount Retail, made a misrepresentation or omission of material fact with intent to deceive, and that he reasonably relied on the misrepresentation or omission, which caused his loss.

Question 7

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

Accepted Answer

According to the Internal Revenue Code, preparers of tax returns can be held liable for an understatement of a client's tax liability due to negligent or willful conduct. Therefore, option A is correct. Options C and D are incorrect as they only cover one type of conduct, whereas, the Code allows for liability for both types of misconduct. Option B is incorrect as it indicates that there is no liability, which is not accurate.

Question 8

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

Accepted Answer

Under the Internal Revenue Code, a tax return preparer can be held liable for an understatement of a client's tax liability due to both negligent and willful misconduct. Therefore, Reed may be liable for both types of misconduct.

Question 9

Diderot's accountant is Esteban and his attorney is Figaro. All states protect, as privileged information, Diderot's communications with​

Accepted Answer

Communications with an attorney, like Figaro, are typically protected as privileged information, whereas communications with an accountant, like Esteban, are not generally considered privileged.

Question 10

Odell, an accountant, prepares for Pronto Tacos Corporation a financial statement that omits a material fact. The financial statement is included in Pronto Tacos's registration statement, which Qiana reads. Qiana buys Pronto Tacos stock. Under Section 11 of the Securities Act of 1933, for Odell to be liable for the omission, Qiana must show that she​

Accepted Answer

Under Section 11 of the Securities Act of 1933, a plaintiff must show that there was a material misstatement or omission in the registration statement and that they suffered a loss, but they do not need to prove reliance on the omission.

Question 11

Geoff is an attorney, whose clients include Hydroponic Superstores, Inc. Unless Hydroponic has violated securities law, the contents of Geoff's file on Hydroponic may be disclosed to someone other than the firm​

Accepted Answer

The contents of an attorney's file on a client are protected by attorney-client privilege and can only be disclosed with the client's consent, unless an exception applies.

Question 12

Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?​

Accepted Answer

The answer of Miriam is an accountant. Natalie is an...

Quiz 47: Professional Liability and Accountability

Reliant Funds, Inc., files a suit against Saul, 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, Reliant Funds must show that Saul​

Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant, but he also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on​

Hernando, an accountant, helps Industrial Equipment & Supplies Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is​

Cathy is an accountant with Discount Retail Corporation. Efrem buys Discount Retail stock and loses money on the investment. To recover from Cathy under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove​

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

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

Diderot's accountant is Esteban and his attorney is Figaro. All states protect, as privileged information, Diderot's communications with​

Geoff is an attorney, whose clients include Hydroponic Superstores, Inc. Unless Hydroponic has violated securities law, the contents of Geoff's file on Hydroponic may be disclosed to someone other than the firm​

Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?​

Reliant Funds, Inc., files a suit against Saul, 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, Reliant Funds must show that Saul

Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant, but he also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on

Hernando, an accountant, helps Industrial Equipment & Supplies Company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is

Cathy is an accountant with Discount Retail Corporation. Efrem buys Discount Retail stock and loses money on the investment. To recover from Cathy under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Efrem must prove

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

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

Diderot's accountant is Esteban and his attorney is Figaro. All states protect, as privileged information, Diderot's communications with

Geoff is an attorney, whose clients include Hydroponic Superstores, Inc. Unless Hydroponic has violated securities law, the contents of Geoff's file on Hydroponic may be disclosed to someone other than the firm

Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?