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1
Under the "suitability" or "know-your-customer" rules of NASD and stock exchanges, a securities broker is required to know the financial circumstances and investment objectives of his client before recommending securities or executing securities transactions for the client.
A)True
B)False
2
The PCAOB that was created by the Sarbanes-Oxley Act of 2002 has the power to investigate and discipline audit firms and their partners and employees.
A)True
B)False
3
An accountant who prepares a federal income tax return for a client may not be ordered to reveal any information pertaining to that return under the accountant-client privilege.
A)True
B)False
4
An accountant who assists his client to prepare and file a federal income tax return containing false statements generally will not be held criminally liable unless he signs the return.
A)True
B)False
5
In order for a third party to hold an accountant liable for fraud, the third party must prove that the accountant made a misstatement or omitted a statement to his client while acting with scienter, that is, the accountant knows the statement or omission is false or is acting with reckless disregard for the truth.
A)True
B)False
6
If an accountant negligently prepares a federal income tax return for her client causing the IRS to impose a penalty and interest assessment on the client, the accountant may face legal liability to her client.
A)True
B)False
7
Accountants may be liable for negligence to third parties who use or otherwise rely on the accountants work:
A)under the Primary Benefit Test, if the third party is a foreseen user of the work.
B)under the Restatement (Second) of Torts test, if the accountant actually knows that third party will use the accountant's work
C)under the Foreseeable Users test, if it is at all foreseeable to the accountant that the work would be used by that third party.
D)Both A and B
E)All of the above
8
All of the following are common legal theories upon which a client may hold her accountant liable for damage except:
A)negligence.
B)fraud.
C)breach of contract.
D)breach of duty to serve.
9
The Sarbanes-Oxley Act of 2002 bans which types of services by audit firms for audit clients?
A)Bookkeeping
B)Actuarial services
C)Management or human resources services
D)Both A and B
E)All of the above
10
An accountant may face liability under Section 11 of the SEC Act of 1933:
A)only if the SEC or third party purchaser of the securities at issue proves that the accountant failed to exercise due diligence to obtain and report accurate information during the auditing process.
B)only if the third party purchaser of the securities at issue proves that she purchased the shares after having read the faulty financial statement prepared by the accountant.
C)if while auditing, the accountant makes a misstatement or omission in an opinion letter or on a financial statement that turns out be of significant importance.
D)if the accountant and the third party suing the accountant have privity of contract.





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