BLTS-10e Practice Quiz
Chapter 34:
Liability of Accountants
and Other Professionals
1. Which of the following IS NOT one of the necessary elements in a lawsuit for negligence against a professional?
a. The plaintiff’s injury must be proximately caused by the defendant’s breach of his duty of care.
b. The defendant must be a member in good standing of a professional organization.
c. A duty of care must exist.
d. The plaintiff must suffer an injury.
Answers:
a. Incorrect. This is one of the elements that must be proved to establish negligence.
b. Correct. The plaintiff does not need to prove that the defendant was a member in good standing of a professional organization.
c. Incorrect. The plaintiff must show that the defendant owed her a duty of care.
d. Incorrect. The plaintiff must show that she suffered an injury.
2. Another term for defalcation is:
a. fraud.
b. embezzlement.
c. trespass.
d. nuisance.
Answers:
a. Incorrect. Defalcation is another word for embezzlement, not for fraud.
b. Correct. Defalcation means the misappropriation of funds.
c. Incorrect. Defalcation is not the tort of trespass.
d. Incorrect. Defalcation is not the tort of nuisance.
3. Which of the following would NOT be a defense in a case of negligence brought against an attorney?
a. The attorney breached her duty of care.
b. The attorney’s client was negligent.
c. The attorney’s negligence was not the proximate cause of the client’s loss.
d. The attorney was simply not negligent.
Answers:
a. Correct. This would definitely not be a defense to a claim of negligence.
b. Incorrect. This would be a legitimate defense to a negligence claim.
c. Incorrect. Showing that the negligence was not the proximate cause of the harms would be a legitimate defense to a negligence claim.
d. Incorrect. If the attorney can show that he was not negligent, he has a legitimate defense.
4. Malpractice may best be defined as:
a. a breach of an ethical duty.
b. professional negligence.
c. constructive fraud.
d. third party liability.
Answers:
a. Incorrect. Malpractice normally involves a breach of an ethical duty, but it is also a violation of the law.
b. Correct. Malpractice is the term given to the tort of negligence when committed by a professional.
c. Incorrect. Malpractice is not best defined as constructive fraud.
d. Incorrect. Third party liability is not a definition of malpractice.
5. The Ultramares doctrine requires what before accountants will be liable to third parties?
a. A declaration of intent.
b. Scienter.
c. Privity or near privity of contract.
d. Foreseeability of the harm.
Answers:
a. Incorrect. There is no requirement that accountants declare an intent (an intent to what?)
b. Incorrect. Scienter is a necessary element of fraud, not of third party liability.
c. Correct. The Ultramares doctrine requires the accountant to be in privity or near privity of contract with the third party in order to be liable for negligence.
d. Incorrect. The Ultramares doctrine does not require that the harms suffered by a third party be foreseeable by the accountant.
6. The Restatement (Second) of Torts states that accountants will be liable to third parties for their negligent acts:
a. when the persons who are harmed were foreseeable, or known, users.
b. at no time.
c. whenever any third party relies on the accountant’s statements or reports.
d. only when the third parties were clients.
Answers:
a. Correct. This is the position taken by the Restatement and by most courts.
b. Incorrect. This is not the position taken by the Restatement.
c. Incorrect. This is not the position taken by the Restatement.
d. Incorrect. By definition, a third party is not a client.
7. If an accountant files misstatements or omits material facts from a registration statement for a security, the accountant will be liable:
a. for defamation.
b. under Section 11 of the 1933 Securities Act.
c. under Section 6694 of the Internal Revenue Code.
d. under the Sherman Act.
Answers:
a. Incorrect. These misstatements or omissions would not make an accountant liable for defamation.
b. Correct. In this case, an accountant would liable under Section 11.
c. Incorrect. The Internal Revenue Code is concerned with tax liability.
d. Incorrect. The Sherman Act deals with anticompetitive behavior, not with securities registration.
8. Section 11 of the 1933 Securities Act imposes what duty on accountants?
a. The duty of care.
b. The duty of due diligence.
c. The duty of the Samaritan.
d. The duty of proximate care.
Answers:
a. Incorrect. The duty of care is normally owed to any client by any professional.
b. Correct. Section 11 requires accountants to follow generally accepted accounting principles and generally accepted auditing standards and to believe that their statements are true, omit no material facts, and are not misleading.
c. Incorrect. No law imposes on accountants a special duty of the Samaritan.
d. Incorrect. There is no duty of proximate care.
9. Accountants may be liable for violations of the securities laws under Section 10(b) of the 1934 Securities Exchange Act. The provisions of this act that apply to accountants are:
a. the defamation provisions.
b. the libel provisions.
c. the environmental provisions.
d. the antifraud provisions.
Answers:
a. Incorrect. The 1934 act does not contain defamation provisions.
b. Incorrect. The 1934 act does not contain libel provisions.
c. Incorrect. The 1934 act does not contain environmental provisions.
d. Correct. Accountants may be subject to the antifraud provisions of the 1934 act.
10. The working papers of an accountant may best be defined as:
a. the materials the accountant uses during the course of a typical business day.
b. the privileged communications between an accountant and his attorney.
c. depositions conducted by the accountant’s attorney.
d. the various documents used and developed by an accountant during an audit.
Answers:
a. Incorrect. These materials may or may not include documents used in an audit, so this would not be the best definition of working papers.
b. Incorrect. This kind of privileged communication would not be working papers.
c. Incorrect. Depositions are not working papers.
d. Correct. This is the best definition of working papers.