Final Test Law
An accountant may be able to raise the defense of the ______ in a malpractice suit by a third party.a. contract rule. b. lack of privity. c. known user rule. d. foreseeable user rule.
B
An unlawful sale under the Insider Trading Sanctions Act of 1984 can result in a civil penalty of up to how many times the profit gained or loss avoided?a. two (2) b. three (3) c. four (4) d. five (5)
B
State statutes designed to protect the public from the sale of worthless stocks and bonds are called: ______.a. antifraud acts. b. blue sky laws. c. investment contract laws.d. pump and dump laws.
B
The Securities Exchange Act of 1934 deals with the __________ distribution of securities.a. primary b. secondary c. aftermarket d. direct
B
To ensure that audit partners do not become entrenched, Sarbanes-Oxley requires audit firms to change audit partners at least once every __________ years.a. three (3) b. five (5) c. seven (7) d. ten (10)
B
Which exemption to registration requirements exempts offerings of less than $5 million to no more than 35 nonaccredited purchasers over a 12-month period?a. Rule 504 exemptionb. Rule 505 exemptionc. Rule 506 exemption d. Rule 507 exemption
B
Which of the following federal laws grants the SEC the power to suspend all trading when markets are excessively volatile?a. The Trust Indenture Act of 1939 b. The Market Reform Act of 1990 c. The Investment Advisors Act of 1940d. The Remedies Act of 1990
B
All of the following are elements of an "investment contract" except: ______.a. an investment of money b. a common enterprise c. an expectation of future profitsd. a money-back guarantee
D
The Litigation Reform Act of 1995 provides for joint and several liability for defendants who are found not to have knowingly committed a violation of the security laws.
F
The Securities Act of 1933 allows a emerging growth company (EGC) with less than $1 million in revenues to waive the prospectus requirement.a. Trueb. False
F
The Securities Act of 1933 prohibits "bad investment" offerings to the public.a. Trueb. False
F
The contact rule does not require that the accountant to actually meet or communicate with the third party to establish a relationship equivalent to privity.a. Trueb. False
F
The contributory negligence of the client does not reduce the liability of an accountant who is liable for malpractice.a. Trueb. False
F
The known user rule imposes liability on the accountant for malpractice when he can foresee the parties who will rely on his work in the financial statements.a. Trueb. False
F
Third persons are prohibited from recovering from an accountant who commits fraud.a. Trueb. False
F
Under SEC Rule 504 of Regulation D, an issuer can offer and sell up to $2 million in securities within a 12 month period without registration and without most of the restrictions contained in Rules 505 and 506.
F
Under SEC rules, an investment attorney cannot be classified as a temporary insider.a. Trueb. False
F
Under the Securities Act of 1933 a corporate bond would not be considered a security. a. Trueb. False
F
Under the known-user rule the identity of the particular user must be known to hold the accountant liable for malpractice.a. Trueb. False
F
Unlisted companies that have assets less than $10 million and fewer than 500 shareholders are subject to the reporting requirements of the Securities Exchange Act of 1934.
F
Investors who lack inside information and have sold their stock during the relevant time period may recover damages from insiders who have made use of the undisclosed information.
T
Investors who lack inside information and have sold their stock during the relevant time period may recover damages from insiders who have made use of the undisclosed information.a. Trueb. False
T
New York follows the contact rule in determining when third persons can sue accountants for negligence.a. Trueb. False
T
One of the concerns reflected in Sarbanes-Oxley was that auditors were not exercising sufficient discretion and independence in conducting audits of their clients.a. Trueb. False
T
Regulation D is commonly referred to as the "private placement exemption" and allows no more than 35 nonaccredited investors per offering.a. Trueb. False
T
Securities acquired under Rules 506, 505 and 404 exemption from registration are considered restricted securities, and their resale may require registration.
T
State blue sky laws typically deal with fraud and licensing.a. Trueb. False
T
The Insider Trading and Securities Fraud Enforcement Act of 1988 gave the SEC authority to bring an action against an individual purchasing or selling a security while in possession of material, inside information.
T
The JOBS Act of 2012 expanded Regulation A to allow emerging enterprises to raise public capital efficiently and to allow more choices to investors through a simpler SEC registration process.a. Trueb. False
T
The JOBS Act requires the SEC to create a "crowdfunding exemption" that would allow companies to raise $1 million in any 12-month period.a. Trueb. False
T
The Market Reform Act of 1990 empowers the SEC to suspend all trading when markets are excessively volatile.
T
The SEC requires that annual shareholder reports be submitted to shareholders in any proxy solicitation on behalf of management.
T
The SEC requires that annual shareholder reports be submitted to shareholders in any proxy solicitation on behalf of management.a. Trueb. False
T
The Sarbanes-Oxley Act of 2002 contains a "clawback provision" which requires the CEO and CFO to reimburse the issuer for any bonus or incentive-based compensation received during the 12-month period following the issuance of the restated financial statements.a. Trueb. False
T
The Sarbanes-Oxley Act of 2002 requires written certification of the 10-K and 10-Q reports by each company's CEO and CFO.a. Trueb. False
T
The Sarbanes-Oxley Act of 2002 requires written certification of the 10-K and 10-Q reports by each company's CFO and CEO
T
The Securities Act of 1933 deals with the original distribution of securities by the issuing corporations
T
The Securities Act of 1933 imposes civil liability for making false or misleading statements in a registration statement.
T
The Securities Act of 1933 prohibits the offering or sale of securities to the public in interstate commerce before a registration statement has been filed with the Securities and Exchange Commission (SEC).
T
The Securities Act of 1933 requires a seller to provide a prospectus to each potential purchaser of an original issue of securities.
T
The Securities Act of 1933 was created to deal with 'penny stocks' and 'pump and dump schemes'.a. Trueb. False
T
The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.
T
The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.a. Trueb. False
T
The fraud-on-the-market theory creates a presumption of securities fraud based on plaintiff's reliance on defendant's misrepresentations which affected the market price of the company's shares.a. Trueb. False
T
The privity rule prevents the filing of an accounting malpractice lawsuit by a third party against an accountant.a. Trueb. False
T
The standards for malpractice are the same for accountants who are full-time employees, as well as independent outside auditors.a. Trueb. False
T
Under the 1990 Remedies Act, the SEC has the power to suspend all trading when markets are excessively volatile.a. Trueb. False
T
Under the 1990 Remedies Act, the SEC may start administrative proceedings against any person or entity, whether regulated by the SEC or not.
T
Under the Litigation Reform Act of 1995, issuers of forward-looking statements that were not knowingly false when made have a safe harbor from related lawsuits if appropriate cautionary language was included.
T
Under the United States Supreme Court's definition, an investment contract exists if the following elements are present: (1) an investment of money, (2) a common enterprise, and (3) an expectation of future profits from the efforts of others.
T
Under the flexible rule some courts have rejected the requirement of privity for malpractice and approach each situation on a case-by-case basis.a. Trueb. False
T
Unless exempted, exchanges, brokers, and dealers who deal in the securities traded in interstate commerce must register with the SEC.a. Trueb. False
T
When the privity rule is applied, a bank lending money to the client of an accountant cannot sue the accountant for malpractice.a. Trueb. False
T
State statutes designed to protect the public from the sale of worthless stocks and bonds are called:
blue sky laws
A corporation or group of investors may seek to acquire control of another corporation by offering cash for all of its shares made available for sale by a certain date. This action is called a(n): ______.a. cash tender offer. b. stock redemption offer. c. stock reclamation offer.d. offer for value
A
A prospectus sets forth:a. the key information contained in the registration statement.b. information on stocks approved by the SEC. c. information that the SEC has not reviewed. d. information as to whether the investment is risk-free.
A
An individual who receives information from an insider or temporary insider is called a:a. tippee. b. tipper. c. de facto insider.d. virtual insider
A
Federal regulation of the sale of securities is based on the:a. Securities Act of 1933 and the Securities Exchange Act of 1934. b. Securities Act of 1933 and the Federal Trade Act of 1936. c. Federal Trade Act of 1936 and the Blue Sky Act of 1933. d. Fair Stock Act of 1932 and the Investment Securities Act of 1934.
A
The registration requirement of the Securities Act of 1933 applies to:a. the issuing of stocks, bonds, and other investment securities.b. the issuing of certificates of deposit by a national bank. c. shares issued by nonprofit corporations. d. issues of $1.5 million or more.
A
The statute of limitations in a breach of contract action for malpractice runs from: ______.a. the date when the contract is breached. b. the date when the harm is discovered. c. the date when the plaintiff determines the total amount of damages caused by the harm. d. either the date when the harm occurs or when it is discovered, depending on the type of damages sustained.
A
Under Regulation D, Rule 506, sales may be made to:a. an unlimited number of accredited investors b. an unlimited number of unaccredited investorsc. no more than 500 accredited investors d. no more than 35 unaccredited investors
A
__________ impose liability on the accountant to a total stranger who gets possession of the accountant's work and then sustains a loss because of a false statement in the work.a. No courts b. A minority of courtsc. A majority of courts d. All courts
A
A __________ insider is someone retained by the corporation for professional services, such as an attorney, accountant, or investment banker.a. professional b. corporate c. temporary d. virtual
C
An accountant guilty of malpractice can be sued: ______.a. for breach of contract only. b. for negligence only. c. for breach of contract or for tort liability. d. in federal court only if the suit is brought by a third person.
C
An accountant who is being sued by a third person for malpractice based on fraud will be able to avoid liability if the accountant can show:a. contributory negligence on the part of the plaintiff. b. that an exculpatory clause applies. c. that the plaintiff did not rely on the false statement.d. the absence of privity of contract.
C
Misrepresentation: ______.a. is the same as fraud. b. is a false statement of fact made with the intent to deceive. c. is a false statement of fact made without any intent to deceive. d. can be used as a limitation to excuse an accountant from liability.
C
Professionals who fail to exercise normal care and skill in the performance of a contract for their services may be sued for a special type of breach known as: ______.a. sub par performance. b. illegal practice. c. malpractice. d. competence reservation.
C
Some states have rejected the requirement of privity but not adopted any set rule. Instead, these states function under the __________ rule.a. known user b. contact c. flexible d. foreseeable user
C
The Public Company Oversight Board:a. is a governmental body. b. must have at least three board members that are CPAs. c. enforces professional rules that ensure audit quality and auditor independence.d. is an agency within the IRS.
C
The contact rule applies in which of the following states?a. Alabama b. Indiana c. New York d. Texas
C
The registration process under Section 5 of the 1933 act is divided into three time periods. In order, they are:a. waiting, prefiling, and posteffective. b. waiting, prefiling, and executory. c. prefiling, waiting, and posteffective. d. prefiling, executory, and posteffective.
C
Under the known user rule: ______.a. the accountant is not liable to any third parties who experience a loss as a result of the accountant's negligence.b. the accountant is liable to all third parties who experience a loss as a result of the accountant's negligence. c. the accountant is liable to third parties who experience a loss as a result of the accountant's negligence but only if the accountant knew the third party would be using the work product.d. the accountant is liable to third parties who experience a loss as a result of the accountant's negligence but only if the accountant's client gave the work to the third party.
C
When an accountant negligently prepares a financial statement knowing that the client intends to use it in obtaining a loan from a bank, the accountant will be liable to whichever lender actually makes the loan under the __________rule.a. known user b. contact c. foreseeable user.d. privity
C
Which of the following acts was passed to ensure that public shareholders faced with a cash tender offer would not be required to respond without sufficient information?a. the Mann Act b. the Robinson-Patman Actc. the Williams Act d. the SEC Act
C
All of the following are true regarding SEC Rule 10b-5 except: ______.a. 10b-5 is the principal antifraud rule relating to the secondary distribution of securities. b. 10b-5 provides that a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information.c. 10b-5 applies to all securities, whether registered or not, as long as use is made of the mail, interstate commerce, or a national stock exchange.d. 10b-5 does not require a plaintiff to show reliance on the misrepresentation
D
An exculpatory clause most likely would be held to limit or disclaim liability for malpractice: ______.a. in an action based on fraud. b. in a suit brought by a third person. c. when the accountant can reasonably be expected to stand behind the information in question.d. when the clause is conspicuous, unambiguous, and clear.
D
In states that follow ______, a third party can recover from a negligent accountant if there was an agreement between the third party and the accountant.a. the flexible rule b. the intended user rule c. the foreseeable user ruled. the contract rule
D
Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employer and trade in securities on that information are guilty of insider trading as: ______.a. aiders and abettors.b. temporary insiders. c. tippees. d. misappropriators.
D
Sarbanes-Oxley would prohibit which of the following individuals from serving on an audit committee of the company's board?a. a director who accepts consulting fees from the company b. a director who is affiliated with the company c. a director who is affiliated with a subsidiary of the company.d. all of these.
D
The General purpose of the UCC is toA Protect the merchantB Protect the consumerC Protect parties from unconscionable contractsD Standardize commercial law and facilitate commercial transactions
D
The Private Securities Litigation Reform Act allows shelters from private liability for issuers who: ______.a. clawback profits. b. issue a prospectus. c. issue statements regarding fraud-on-the-market.d. use forward-looking statements.
D
The Securities Act of 1933 act applies all of the following instruments and transactions except: ______.a. stocks. b. corporate bonds. c. variable annuities.d. cashier checks.
D
The ______ requires the SEC to create a(n) ______ exemption that would allow companies to raise $1 million in any 12-month period.a. Rule 505, JOBS Act. b. JOBS Act, accredited investor c. Regulation A, JOBS Act. d. JOBS Act, crowdfunding
D
The sale provisions of Article 2 of the UCC apply toA MerchantsB Merchants but not non merchantsC Nonmerchants but not merchantsD Both merchants and nonmerchants
D
The standards for accountants' professional liability can be found in all of the following except: ______.a. court decisions. b. the actual contract. c. GAAP and GAAS standards.d. the common law.
D
To help eliminate conflicts of interest, Sarbanes-Oxley prohibits all the following activities by audit firms for their clients, except: ______.a. the design and implementation of financial information systems. b. actuarial services. c. management functions and human resources. d. having multiple clients whose interests may be adverse to each other.
D
Under the UCC, a term in a contract may be explained byA Course of dealingB Usage of tradeC Course of performanceD All of the above
D
Unidentified members of a certain class may sue for negligent malpractice in states that follow the __________ rule.a. contact b. known user. c. unidentified user d. foreseeable user
D
A "short-swing" profit is realized by a corporate insider from selling corporate securities less than one (1) year after purchase.
F
A "short-swing" profit is realized by a corporate insider from selling corporate securities less than one (1) year after purchase.a. Trueb. False
F
A client may only recover tort damages from an accountant for ordinary negligence.a. Trueb. False
F
A disclaimer based on lack of knowledge protects an accountant from malpractice liability.a. Trueb. False
F
A registration statement sets forth the key information contained in the prospectus.a. Trueb. False
F
All private offerings of securities valued less than $100,000 are exempt from the SEC registration requirements.a. Trueb. False
F
All private or limited offerings of securities are exempt from the SEC registration requirements.
F
An accountant cannot be held liable for turning a blind eye to suspicious issues and items.a. Trueb. False
F
An accountant is generally not liable for damages if the accountant fails to inform a client of the tax consequences associated with selling a business.a. Trueb. False
F
Any shareholder owning more than five (5) percent of any class of the corporation's equity securities is statutorily defined as an insider and must file with the SEC a disclosure statement regarding such ownership and all related transactions.
F
Any shareholder owning more than five (5) percent of any class of the corporation's equity securities is statutorily defined as an insider and must file with the SEC a disclosure statement regarding such ownership and all related transactions.a. Trueb. False
F
At least 30 days must elapse from the date of a company's filing a registration statement with the SEC to the date the registration becomes effective
F
At least 30 days must elapse from the date of a company's filing a registration statement with the SEC to the date the registration becomes effective.a. Trueb. False
F
Because of the widespread economic impact of the 2008 crisis, Congress passed The Dodd-Frank Act in 2012 to encourage investment in companies, especially smaller companies, by providing easier access of small firms to capital markets.a. Trueb. False
F
Breach of contract remedies are available to third parties against accountants because they are ordinarily considered third-party beneficiaries of contracts with accountants.a. Trueb. False
F
Companies whose securities are listed on a national securities exchange and unlisted companies with assets in excess of $10 million and 500 or more shareholders are exempt from the reporting requirements of the Securities Exchange Act of 1934.
F
Companies whose securities are listed on a national securities exchange and unlisted companies with assets in excess of $10 million and 500 or more shareholders are exempt from the reporting requirements of the Securities Exchange Act of 1934.a. Trueb. False
F
Courts generally impose liability on the accountant when a total stranger gets possession of the accountant's work and then sustains a loss because of a false statement in the work.a. Trueb. False
F
Disclaimers are not enforceable unless they are clear and unambiguous.a. Trueb. False
F
Disclaimers of liability are not valid, even when it is reasonable to expect the accountant to stand behind her data.a. Trueb. False
F
For accountants, fraudulent malpractice always involves upgrading the financial condition of the firm.a. Trueb. False
F
In contrast to contributory negligence principles, comparative negligence principles are never applied to malpractice situations.a. Trueb. False
F
In some states an exculpatory clause protects the accountant from a malpractice suit brought by a third party but not from a suit brought by a client.a. Trueb. False
F
One of the key elements in the Supreme Court's definition of an 'investment contract' is the right to a refund of the investment. a. Trueb. False
F
Rule 10b-5 only applies to registered securities not sold in interstate commerce.a. Trueb. False
F
Rule 10b-5 only applies to registered securities.
F
Securities covered by the securities acts includes only investment instruments such as stocks and bonds not "investment contracts."
F
State laws designed to protect the public from the sale of worthless stocks and bonds are known as "clear sky" laws.
F
The Dodd-Frank Act authorizes the Federal Trade Commission to create a whistleblower program to encourage individuals to provide the SEC with information that would lead to the discovery and prosecution of violations of the federal securities laws.a. Trueb. False
F
Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employers and trade in securities on that information are guilty of insider trading as "misappropriators."
T
Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employers and trade in securities on that information are guilty of insider trading as misappropriators.a. Trueb. False
T
Federal regulation of the sale of securities is based on the:
Securities Act of 1933 and the Securities Exchange Act of 1934.
A disclaimer that protects an accountant from liability for inaccurate reporting of certain specified financial information will be held valid if the accountant had no means of examining the information.a. Trueb. False
T
A person not in privity with an accountant is prohibited from recovering for malpractice when the accountant had no knowledge of any use that could affect that party.a. Trueb. False
T
A prospectus sets forth the key information contained in the registration statement.
T
According to the intended user rule the accountant must have furnished the information directly to the client, knowing that the client would transmit the information to other third parties.a. Trueb. False
T
An accountant may be liable for malpractice if the accountant fails to detect signs that an employee of the client is embezzling.a. Trueb. False
T
An accountant who fails to render services in accordance with those in his profession, breaches his duty of care and commits malpractice.a. Trueb. False
T
An accountant who prepares any statement, opinion or other legal paper filed with the SEC with the preparer's consent is deemed to be practicing before the SEC.
T
Exchanges, brokers, and dealers who deal in the securities traded in interstate commerce or on any national security exchange must register with the SEC unless exempted by it.
T
Following GAAP and GAAS is persuasive but not conclusive evidence of meeting standards for the accounting profession.a. Trueb. False
T
Forward looking statements, which involved SEC filings, press releases, and reports to shareholders, preserve the protections of the Private Securities Litigation Reform Act of 1995a. Trueb. False
T
In a 10b-5 situation, the plaintiff must show "reliance" on the misrepresentation and a resulting injury.a. Trueb. False
T
In an action for breach of contract, the statute of limitations runs from the date on which the contract is breached.a. Trueb. False
T
In every 10b-5 situation, the plaintiff must show "reliance" on the misrepresentation and a resulting injury.
T
In some states, exculpatory clauses cannot protect the accountant from a suit brought by a third party.a. Trueb. False
T
