Which of the following statements is correct regarding an accountant's working papers?
The client owns the working papers but, in the absence of the accountant's consent, may not disclose them without a court order.
The client owns the working papers but the accountant has custody of them until the accountant's bill is paid in full.
The accountant owns the working papers but generally may not disclose them without the client's consent or a court order.
The accountant owns the working papers and generally may disclose them as the accountant sees fit.
Which of the following statements is generally correct regarding the liability of a CPA who negligently gives an opinion on an audit of a client's financial statements?
The CPA is only liable to those third parties who are in privity of contract with the CPA.
The CPA is liable to anyone in a class of third parties whom the CPA knows will rely on the opinion.
The CPA is only liable to the client.
The CPA is liable to all possible foreseeable users of the CPA's opinion.
When performing an audit, a CPA will most likely be considered negligent when the CPA fails to:
Warn a client of known internal control weaknesses.
Detect all of a client's fraudulent activities.
Include a negligence disclaimer in the client engagement letter.
Warn a client's customers of embezzlement by the client's employees.
Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?
A disclaimer contained in the engagement letter.
Contributory negligence on the part of the client.
Lack of scienter.
Lack of privity.
Which of the following statements is correct regarding a CPA's working papers? The working papers must be:
Turned over pursuant to a valid federal court subpoena.
Turned over to any government agency that requests them.
Transferred to another accountant purchasing the CPA's practice even if the client hasn't given permission.
Transferred permanently to the client if demanded.
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?
The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion.
The CPA is liable only to known users of the financial statements.
The CPA is liable only to third parties in privity of contract with the CPA.
The CPA probably is liable to any person who suffered a loss as a result of the fraud.
An accounting firm was hired by a company to perform an audit. The company needed the audit report in order to obtain a loan from a bank. The bank lent $500,000 to the company based on the auditor's report. Fifteen months later, the company declared bankruptcy and was unable to repay the loan. The bank discovered that the accounting firm failed to discover a material overstatement of assets of the company. Which of the following statements is correct regarding a suit by the bank against the accounting firm? The bank:
Cannot sue the accounting firm because of the statute of limitations.
Can sue the accounting firm for the loss of the loan because of the rule of privilege.
Can sue the accounting firm for the loss of the loan because of negligence.
Cannot sue the accounting firm because there was no privity of contact.
At a confidential meeting, an audit client informed a CPA about the client's illegal insider-trading actions. A year later, the CPA was subpoenaed to appear in federal court to testify in a criminal trial against the client. The CPA was asked to testify to the meeting between the CPA and the client. After receiving immunity, the CPA should do which of the following?
Discuss only the items that have a direct connection to those items the CPA worked on for the client in the past.
Cite the privileged communications aspect of being a CPA.
Discuss the entire conversation including the illegal acts.
Take the Fifth Amendment and not discuss the meeting.
Spinner, CPA, had audited Lasco Corp.'s financial statements for the past several years. Prior to the current-year's engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner's working papers so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco's audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the working papers?
Yes, because Lasco is required to direct prospective auditors to contact Spinner to make arrangements to view the working papers in Spinner's office.
No, because Lasco has a legitimate business reason for demanding that Spinner surrender the working papers.
No, because it was Lasco's financial statements that were audited.
Yes, because Spinner is the owner of the working papers.
A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations?
A review of the CPA's professional practice by a state CPA society.
An inquiry from the professional ethics division of the AICPA.
A letter to the client from the IRS.
A court-ordered subpoena or summons.
Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable?
Any foreseen or known third party who relied on the report.
Only those third parties in privity of contract with the accountant.
All third parties who relied on the report and sustained injury.
Any third party whose reliance on the report was reasonably foreseeable.
A company engaged a CPA to perform the annual audit of its financial statements. The audit failed to reveal an embezzlement scheme by one of the employees. Which of the following statements best describes the CPA's potential liability for this failure?
The CPA will not be liable if care and skill of an ordinary reasonable person was exercised.
The CPA's adherence to generally accepted auditing standards (GAAS) may prevent liability.
The CPA is liable for any embezzlement losses that occurred before the scheme should have been detected.
The CPA may be liable for punitive damages if due care was not exercised.
In which of the following types of action, brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?
An action for common law fraud.
An action for common law breach of contract.
An action brought under Section 11 of the Securities Act of 1933.
An action brought under Rule 10b-5 of the Securities Exchange Act of 1934.
An accountant's audit documentation, created by an accountant when performing an audit for a client, is owned by:
Neither the accountant nor the client.
The accountant and the client jointly.
The accountant only.
The client only.
For a CPA to be liable for damages under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following, except that:
The CPA violated generally accepted auditing standards.
The CPA acted with scienter.
The plaintiff relied on the financial statements audited by the CPA.
There was a material misrepresentation of fact in the financial statements audited by the CPA.
Which of the following statements is correct regarding the liability of a CPA for services performed?
A CPA's work is not guaranteed to be accurate even though the CPA acted in a reasonably competent and professional manner.
A CPA's liability for fraud extends only to the client and no further.
A CPA's liability for negligence extends only to the client and no further.
A CPA is negligent for exercising only that degree of care a reasonably competent CPA would exercise under the circumstances.
Which of the following statements is correct regarding disclosure of client working papers prepared by a CPA?
Working papers may not be disclosed to any third parties without the client's permission.
.Working papers may not be turned over to a CPA quality review team without the client's permission.
Working papers may not be transferred to another accountant without the client's permission.
Working papers may not be disclosed under a federal court subpoena without the client's permission.
Under the common law, which of the following defenses, if used by a CPA, would best avoid liability in an action for negligence brought by a client?
The accuracy of the CPA's report was not guaranteed.
The client was comparatively negligent.
The CPA's negligence was not the proximate cause of the client's losses.
The client was contributorily negligent.
Which of the following pairs of elements must a client prove to hold an accountant liable for common law negligence?
Breach of the accountant's duty of care and loss.
Willful misrepresentation and breach of the accountant's duty of care.
Freedom from contributory negligence and privity.
Scienter and a violation of GAAP.
Which of the following statements is correct regarding the Bank Secrecy Act of 1970, as amended?
It applies to banks only.
It requires private citizens to file reports in some cases.
It generally requires the filing of a currency transaction report for any deposit, withdrawal, or exchange of currency of $5,000 or more.
It generally requires records to be kept for three years.
If a financial institution receives a deposit of $20,000 from a customer for whom the bank has not filed a designation of exempt person form, within how many days must the bank file a currency transaction report if the bank does not file electronically?
If a bank sells a $3,000 traveler’s check, which of the following statements is true?
The bank must obtain identification information from the buyer but need not retain the information if the buyer is a customer.
The bank must obtain and retain any required identification for five years.
The bank has no obligations with respect to the transaction because it does not exceed $10,000.
The bank must report the transaction on a currency transaction report form.
Which of the following customers cannot be designated an exempt person for purposes of filing currency transaction reports under the Bank Secrecy Act of 1970, as amended?
A payroll customer who regularly withdraws more than $10,000 in order to pay its U.S. employees.
Under the Bank Secrecy Act of 1970, as amended, if a bank’s customer engages in a transaction that is not the type of transaction that the bank would normally expect the customer to engage in, which of the following is not a duty of the bank? a
.File a suspicious transaction report.
None of the answer choices are correct.
Inform the customer of the unusual transaction.
.Inform its board of directors if it files a suspicious activity report.
Which of the following is not a report that must be filed under the Bank Secrecy Act of 1970, as amended?
.Currency Transaction Report.
.Report of International Transportation of Currency or Monetary Instruments.