AICPA
A CPA prepares an individual tax return for a client. Upon completion of the tax return, the client has not paid the fees in full for the preparation of that tax return, yet has requested to receive the tax return from the CPA. May the CPA withhold the tax return until such payment has been received?
Yes. Interpretation 501-1, Response to Requests by Clients and Former Clients for Records, states that a member may withhold his or her work product, such as a tax return, if the client has not paid the fees for preparing the specific work product. The member may withhold only work products for which fees are owed. However, it should be noted that the member must also comply with the rules and regulations of authoritative regulatory bodies, such as the member’s state board of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body. For example, certain state boards of accountancy do not permit a member to withhold certain records notwithstanding fees due to the member for the work performed. If the member’s state board’s rules are more restrictive than the code, the member must comply with the state board’s rules.
Mary Tudor decides to use insider information to sell stock. She justifies this decision by claiming that if she did not do this, she would lose money and subsequently have to cut down on her staff, which will hurt her employees. She contended that she wanted to balance the interest of the staff. This defense best illustrates:
What is stakeholder theory of corporate responsibility.
If a plaintiff proves to have suffered a direct injury in violation of the Sherman Act, it is entitled to recover:
What is three times the amount of loss it suffered as a result of the violation, plus reasonable legal fees.
The accountant-client privilege provides all of the following, except: A. the privilege is identical to the broker-client relationship. B. the privilege is not recognized in common law. C. the privilege protects communications between accountants and their clients. D. the privilege protects accountants and their working papers.
What is A. the privilege is identical to the broker-client relationship.
Gold, CPA, rendered an unqualified opinion on the 1987 financial statement of Eastern Power Co. Egan purchased Eastern bonds in a public offering subject to the Securities Act of 1933. The registration statement filed with the SEC included the financial statements. Gold is being sued by Egan under Section 11 of the Securities Act of 1933 for the misstatements contained in the financial statements. To prevail, Egan must prove: A. scienter: no; reliance: no B. scienter: no; reliance: yes C. scienter: yes; reliance: no D. scienter: yes; reliance: yes
What is A. scienter: no; reliance: no
Under the Sales Article of the UCC, which of the following statements is correct?
A. The obligations of the parties to the contract must be performed in good faith.
B. Merchants and non-merchants are treated alike.
C. The contract must involve the sale of goods for a price of more than $800.
D. None of the provisions of the UCC may be disclaimed by agreement.
The correct answer is A.
UCC Sales requires all parties to act in good faith.
YOU HAVE UNLOCKED THE DOUBLE JEOPARDY QUESTION.
A CPA firm audits a 401(k) plan for a company but performs no attest services for that company. The company has asked the CPA firm to perform an appraisal of the company’s fixed assets based on the belief that some of the assets are impaired or overvalued on the property, plant, and equipment listing. The fixed assets are material to the company’s financial statements. Can the CPA firm perform the valuation service and still remain independent to audit the 401(k) plan?
Yes. Interpretation 101-18, Application of the Independence Rule to Affiliates—which is effective for engagements covering periods beginning on or after Jan. 1, 2014, with early implementation allowed—says that prohibited nonattest services can be provided to a sponsor of a single employer benefit plan financial statement attest client as long as the results of such nonattest services will not be subject to financial statement audit procedures during the 401(k) audit. For any other threats that are created by the provision of the nonattest services that are not at an acceptable level (in particular, those relating to management participation), such threats should be eliminated or reduced to an acceptable level by the application of safeguards.
"I am entitled to a job, a place to live, food, and health care regardless of how hard I work, and how motivated I am to work to earn those things." This is:
What is Right Theory.
An agreement made by a major oil refiner to purchase and store the excess production from small independent refiners was found to be price fixing, because the purpose of the agreement was to affect the market price for gasoline by artificially limiting the available supply. This is an example of:
What is horizontal price fixing.
In the Ultramares Corp. v. Touche (1931) case, the court established a test to hold a professional liable to third party non-clients for negligence in the preparation of financial reports in certain limited circumstances. Under this Ultramares case, all of the following are required, except: A. the third party non-client must have a familial relationship with the client. B. the professional must know the name of the intended non-client who will use the financial reports. C. the professional must know the purpose of the financial reports. D. the professional must know the extent of the use of the financial reports.
What is A. the third party non-client must have a familial relationship with the client.
West & Co., CPAs, were engaged by Sand Corp. to audit its financial statements. West issued an unqualified opinion on Sand's financial statements. Sand has been accused of making negligent misrepresentations in the financial statements, which Reed relied upon when purchasing Sand stock. West was not aware of the misrepresentations nor was it negligent in performing the audit. If Reed sues West for damages based upon Section 10(B) and rule 10b-5 of the Securities Exchange Act of 1934, West will: A. lose, because Reed relied upon the financial statements. B. lose, because the statements contained negligent misrepresentation. C. prevail, because some element of scienter must be proved. D. prevail, because Reed was not in privity of contract with West.
What is C. prevail, because some element of scienter must be proved.
Mr. Lupin has asked a CPA to prepare his tax return for Year 4. In gathering the information for this year, the CPA discovers that Lupin claimed his son as a dependent in Year 3 when the son no longer qualified. What action should the CPA take?
A. File an amended return to correct the error in Year 3.
B. Refuse to take the job until the error has been corrected.
C. Notify Mr. Lupin of the problem and advise that an amended return be filed immediately.
D. Notify the Internal Revenue Service of the mistake.
The correct answer is C.
The Year 3 tax return is the property of the taxpayer. Therefore, the CPA should explain the mistake that was made and advise the client to correct the error as promptly as possible. If the client does not follow that advice, the CPA should strongly consider resigning from the engagement.
A CPA works for a privately held manufacturing company as a senior financial analyst. The company does not release any financial information to the public and considers such information confidential. The CPA resigns from the company and is subsequently hired by that company’s main competitor. Can the CPA disclose to the new employer what his former employer’s profit margins were on products?
No. Interpretation 501-9, Confidential Information Obtained From Employment or Volunteer Activities, states that a CPA cannot disclose confidential employer information without the proper authority or specific consent of the employer. Confidential employer information includes any proprietary information pertaining to the employer that is not known to be available to the public and is obtained as a result of the CPA’s current or previous employment relationship.
A wrong conclusion that relies on the idea that a popular belief is true.
What is an argumentum ad populum?
Section 5 of the Federal Trade Commission Act regulates anticompetitive practices. This Act regulates all of the following, except:
A. activities regarding non-material misrepresentations. B. activities involving material omissions. C. activities likely to mislead consumers. D. cases when the consumer acts reasonably under the circumstances.
What is A. activities regarding nonmaterial misrepresentations.
With regard to the accountant’s duty to discover wrongdoings in a company, all of the following are true, except: A. the accountant does not owe any specific duty to the client to uncover fraud or embezzlement within the company. B. the accountant is liable for any and all financial damages from the date he or she was hired, regardless of the accountant’s actions. C. the accountant must investigate suspicious circumstances that may indicate fraud. D. the accountant must uncover fraud or wrongdoing if an ordinary prudent accountant would in the same situation.
What is B. the accountant is liable for any and all financial damages from the date he or she was hired, regardless of the accountant’s actions.
One of the elements necessary to hold a CPA liable to a client for conducting an audit negligently is that the CPA: A. acted with scienter or guilty knowledge. B. was a fiduciary of the client. C. failed to exercise due care. D. executed an engagement letter.
What is C. failed to exercise due care.
Under the provisions of Section 10(b) and Rule 10(b)(5) of the Securities Exchange Act of 1934, which of the following activities must be proven by a stock purchaser in a suit against a CPA?
I. Intentional conduct by the CPA designed to deceive investors.
II. Negligence by the CPA.
A. Neither I nor II.
B. Both I and II.
C. I only.
D. II only.
The correct answer is C.
Under Section 10(b) of the Securities Exchange Act of 1934, a plaintiff must show acquisition of the stock, a loss, a material misrepresentation or omission of fact, scienter (or a reckless disregard for the truth), and reliance. Intentional conduct by the CPA designed to defraud (scienter) must be proven. There is no requirement to prove negligence of the CPA under 10(b).
The spouse of a partner in a CPA firm has a 10% ownership interest in ABC Co., an investment group controlled by XYZ Co. XYZ also controls GHI Co., which is an attest client of the CPA firm. GHI is material to XYZ; however, ABC is not. Is the firm’s independence impaired?
No. Under Interpretation 101-18, Application of the Independence Rules to Affiliates, which is effective for engagements covering periods beginning on or after Jan. 1, 2014, with early implementation allowed, a sister entity of a financial statement attest client would be considered an affiliate of the financial statement attest client and subject to the independence rules only if both the sister entity and the financial statement attest client are material to the entity that controls both.
Debra is talking to Alex, her stockbroker. Debra asks Alex if she can trust his advice to purchase Acme Co. stock. Alex replies: "Of course you can." Debra asks: "Why can I trust you?" Alex says with a smile, "Because I am a trustworthy person." Alex is engaging in:
What is circular reasoning, also known as begging the question.
Under Section 5 of the Federal Trade Commission Act, all of the following remedies are available upon the finding of deceptive practices, except: A. an order for the company to cease the deceptive advertising. B. an order to terminate the company’s business operations. C. an order for the company to engage in corrective advertising. D. an order for an affirmative disclosure of the information that was missing in the original advertising
What is B. an order to terminate the company’s business operations.
If a stockholder sues a CPA for common-law fraud based on false statements contained within the financial statements audited by the CPA, which of the following, if present, would be the CPA's best defense? A. The stockholder lacks privity of contract and does not have standing to sue. B. The false statements were immaterial. C. The CPA did not believe that the stockholder would discover the false information. D. The contributory negligence of the client.
What is B. The false statements were immaterial.
In which of the following statements concerning a CPA firm's action is scienter or its equivalent absent? A. Actual knowledge of fraud. B. Performance of substandard auditing procedures. C. Reckless disregard for the truth. D. Intent to gain monetarily by concealing fraud.
What is B. Performance of substandard auditing procedures.
During year one, Hogwarts Corp. exchanged 8,000 shares of its own $8 par common stock for land with a fair market value of $150,000. As a result of this exchange, Hogwarts should report in its year one tax return:
A. $150,000 Section 1231 gain.
B. $150,000 Section 1245 gain.
C. $150,000 ordinary income.
D. No gain.
The correct answer is D.
No gain or loss is recognized by a corporation on the sale or exchange of its own stock.
A CPA firm has been asked by a benchmarking organization to provide certain financial information, not available to the public, on the firm’s medical products manufacturing clients. The benchmarking organization intends to use this information to analyze and aggregate data on this industry group for its quarterly newsletter. The organization has assured the CPA firm that no one would be able to identify the CPA firm’s individual clients, as the information would be aggregated and presented as industry statistical averages. Can the CPA firm provide this information to the benchmarking organization without violating client confidentiality if the firm has not received specific client consent?
No. Under Ethics Ruling No. 2, Disclosure of Client Information to Third Parties, under Rule 301, Confidential Client Information, the CPA firm could not disclose any information to the benchmarking organization without specific client consent, preferably in writing.
Enron's executives' creation of partnerships that allowed Enron to keep liabilities off the balance sheet yet generate income that could be recognized in the current period could be described as an example of:
What is Profit Maximization.
Which of the following antitrust activities can be challenged only under the state law? A. Inter-state antitrust activities B. Intra-state antitrust activities C. Foreign company antitrust activities D. International antitrust activities
What is B. Intra-state antitrust activities.
When CPAs fail in their duty to carry out their contracts for services, liability to clients may be based on A. breach of contract: yes; strict liability: yes. B. breach of contract: yes; strict liability: no. C. breach of contract: no; strict liability: no. D. breach of contract: no; strict liability: yes.
What is B. breach of contract: yes; strict liability: no.
Sharp & Co., CPAs, was engaged by Radar Corp. to audit its financial statements. Sharp issued an unqualified opinion on Radar's financial statements. Radar has been accused of making negligent misrepresentations in the financial statements, which Wisk relied upon when purchasing Radar stock. Sharp was not aware of the misrepresentations nor was it negligent in performing the audit. If Wisk sues Sharp for damages based upon Section 10(B) and Rule 10b-5 of the Securities Exchange Act of 1934, Sharp will: A. lose, since the statements contained negligent misrepresentations. B. lose, since Wisk relied upon the financial statements. C. prevail, since some element of scienter must be proved. D. prevail, since Wisk was not in privity of contract with Sharp.
What is C. prevail, since some element of scienter must be proved.
Louise wrote an email offering to sell his used I-Phone to Barney for $300. Which of the following statements is correct in regards to the effect of the offer communicated?
A. If Barney accepts the offer, Louise will be obligated to sell the I-Phone to Barney.
B. Barney must accept the offer in writing due to the Statute of Frauds.
C. The offer is not revocable if it is a signed in writing and is an offer to sell goods.
D. Barney may accept the offer until the offer is explicitly withdrawn by Loiselle.
ANSWER: A
The contract is formed when the offeree accepts the offer.