Question 1

Meri,an accountant,includes a false statement in a report for Novelty Paper Products,Inc.(NPPI)that is filed with the Securities and Exchange Commission.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

Accepted Answer

To be liable for fraud under the 1934 Securities Exchange Act, Meri must have knowingly made a false statement. If she can show that she was not aware her statement was false, she may be able to avoid liability. The other options are not relevant to the issue of whether Meri knowingly made a false statement.

Question 2

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

Accepted Answer

Under the Internal Revenue Code, a tax return preparer can be held responsible for an understatement of a client's tax liability due to either negligent or willful misconduct. Therefore, both options A and D are correct.

Question 3

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 Internal Revenue Code,liability for preparing a false return may be imposed on

Accepted Answer

The Internal Revenue Code imposes liability for preparing a false return on both Lacy and Muff, regardless of whether or not they are accountants. It is important for both individuals and companies to ensure accuracy in tax returns to avoid any legal consequences.

Question 4

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

Accepted Answer

The answer of Pace is an attorney,whose clients include Quikfeet...

Question 5

Bowie,a certified public accountant,prepares and certifies Candy Products Corporation's financial statements. These statements are included in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities. Dona buys a security covered by the registration statement. Based on this transaction,Dona files a suit against Bowie under Section 11 of the Securities Act of 1933 and Section 10(b)of the Securities Exchange Act of 1934. To succeed in the suit,what must Dona prove? Bowie responds that Dona was not in privity with him and that even if she had been in privity,she cannot prove his lack of due diligence. Can Bowie prevail on these grounds? Why or why not?

Accepted Answer

The answer of Bowie,a certified public accountant,prepares and certifies Candy...

Question 6

Bertha is an accountant with Chocolate Shoppes Corporation.Doral buys Chocolate stock and loses money on the investment.To recover from Bertha under Section 10(b)of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission,Doral must prove

Accepted Answer

To recover from Bertha under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Doral must prove the five elements of securities fraud: scienter (intent to deceive), fraud (misrepresentation or omission of material fact), reliance (on the misrepresentation), materiality (the misrepresentation was significant enough to influence a reasonable investor), and causation (the misrepresentation caused the investor's loss). Therefore, the best choice is D, as it includes all five elements.

Question 7

Pat,an accountant,includes a false statement in a report for Quantity Overstock,Inc.,that is filed with the Securities and Exchange Commission.Quantity publishes a misleading ad about its future prospects.Rita sees the ad and calls Stan,who buys stock in Quantity.Under Section 18 of the Securities Exchange Act of 1934,liability may attach to

Accepted Answer

The answer of Pat,an accountant,includes a false statement in a...

Question 8

Flynn,an accountant,helps Grange Supply 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 considered tax fraud and is a felony under the Internal Revenue Code. It is punishable by both a fine and imprisonment.

Question 9

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

Accepted Answer

To recover damages under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, it is necessary to show that the accused acted with scienter, which means that they acted with an intent to deceive, manipulate or defraud. The other options are not relevant to this requirement.

Question 10

Bryce's accountant is Caleb and his attorney is Delilah.All states protect,as privileged information,Bryce's communications with

Accepted Answer

The answer of Bryce's accountant is Caleb and his attorney...

Question 11

Dominique,a certified public accountant,provides accounting services to Eagle Corporation.The services include preparing Eagle's financial reports and issuing opinion letters based on the reports.In 2008,Eagle falls into serious financial trouble,but neither Dominique's reports nor her opinion letters indicate this situation.Relying on Dominique's portrayal of Eagle's financial situation,Eagle borrows a large sum of money to build a new shipping facility.In lending Eagle the money,First National Bank relies on Dominique's opinion letter.Dominique is aware of this reliance.If Dominique did not engage in intentional fraud but was negligent,what is her potential liability?

Accepted Answer

The answer of Dominique,a certified public accountant,provides accounting services to...

Question 12

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

Accepted Answer

Violation of securities laws may incur criminal liability, which may result in fines, imprisonment, or both. However, this would depend on the specific circumstances and the severity of the violation. Comprehensive liability and corporate liability may be incurred in other types of legal violations, but not necessarily for securities laws violations. No liability would only apply if there are no legal violations committed.

Quiz 34: Liability of Accountants Other Professionals