Over the last few years, plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act.

Accountants may not be sued for malpractice because that action is only available in the medical community. 
FALSE

Actions brought against attorneys, lawyers, real estate brokers, doctors, architects, and other professionals are referred to as malpractice actions.

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured though a justifiable reliance upon the fraudulent information. 
TRUE

An accountant who commits fraud is liable to those parties he or she reasonably should have foreseen would be injured through a justifiable reliance on the fraudulent information.

Over the last few years, plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations Act. 
TRUE

Over the last few years, plaintiffs have been successful in bringing fraud suits against accountants under the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Whether third parties have a claim against an accountant on the basis of their reliance upon negligently prepared financial statements is the same in all states because it is governed by federal law. 
FALSE

Third-party liability, as decided by the states, falls into three general groupings: (1) privity or near-privity (the Ultramares rule), (2) foreseen users and classes of users (the Restatement rule), and (3) reasonably foreseeable users.

The reasonably foreseeable users test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and did, in fact, use and rely upon that work product for a proper business purpose. 
TRUE

Very few states have adopted the general negligence standard of accountant third-party liability called the reasonably foreseeable users test. This test holds an accountant liable to any third-party who was or should have been foreseen as a possible user of the accountant's work product and who did in fact use and rely on that work product for a proper business purpose.

After an audit, the accountant is the legal owner of working papers. 
TRUE

After an audit, the accountant is the legal owner of working papers.

When a federal law is at issue, state protection of an accountant-client privilege does not apply. 
TRUE

A number of states have adopted statutes granting some form of accountant-client privilege, but when a federal law is at issue, state protection does not apply.

A plaintiff may only recover under Section 11 of the Securities Act of 1933 if the plaintiff can establish that the plaintiff purchased securities in an initial public offering. 
FALSE

Under Section 11 of the Securities Act of 1933, accountants are civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires. Originally liable only to those who purchased securities in an initial public offering (IPO), accountants are now liable to subsequent purchasers as well. The purchaser may recover damages without knowing about or relying on the flawed information or even being a party to the contractual agreement.

In the Case Opener "WorldCom," the court ruled that the chairman of WorldCom's board of directors could have no personal liability for misrepresentations of the company's condition in filings with the Securities and Exchange Commission. 
FALSE

The chairman of WorldCom's board of directors faced charges of liability under Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Securities Exchange Act. The judge denied the chairman's motion on all counts, claiming that the chairman did not meet his burden of proof for any of the affirmative defenses.

Regarding liability for negligence to third parties, under the Restatement test, an accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw. 
TRUE

Under the Restatement test, an accountant is liable to known third-party users of the accountant's work product. The test extends liability to those people, or the class of people, the accountant foresaw or should have foreseen as being the recipients of and relying on his or her work.