Which of the following are penalties under the Sarbanes-Oxley Act for the willful violation of the section requiring the retention of working papers?

Which of the following are penalties under the Sarbanes-Oxley Act for the willful violation of the section requiring the retention of working papers? 
A. There are no penalties because the Sarbanes-Oxley Act does not require the retention of working papers.
B. Accountants may be fined but not imprisoned.
C. Accountants may be fined or imprisoned for up to ten years, but not both.
D. Accountants may be fined, imprisoned for up to ten years, or both.
E. Accountants may be fined and imprisoned up to ten years.

The Sarbanes-Oxley Act of 2002 requires keeping working papers for five years starting with the end of the fiscal period in which the audit was conducted. Willful violation results in a fine, imprisonment up to 10 years, or both.

Under which of the following are accountants civilly liable for misstatements and omissions of material facts made in registration statements the SEC requires? 
A. Section 11 of the Securities Act of 1933
B. Section 10 of the Securities Act of 1934
C. Section 12 of the Securities Act of 1934
D. Section 13 of the Securities Act of 1935
E. Section 12 of the Securities Act of 1933

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.

Which of the following is true regarding what a plaintiff must do in order to recover damages under the Securities Act of 1933 after purchasing a security covered by a registration statement containing false information or missing information? 
A. A plaintiff must prove reliance on the registration statement.
B. A plaintiff must prove privity with the accountant at issue.
C. The plaintiff must establish reliance and privity.
D. The plaintiff must establish reliance on the financial statement, privity with the accountant, and also that the securities were purchased in an initial public offering.
E. The plaintiff does not have to prove reliance on the financial statement nor must the plaintiff prove contractual privity.

To recover damages, a plaintiff—someone who purchased a security covered by a flawed registration statement—does not need to prove reliance on the statement or to establish privity. The purchaser may recover damages without knowing about or relying on the flawed information or even being a party to the contractual agreement.

For which of the following does the Securities Exchange Act impose liability? 
A. Fraudulent statements made to the SEC.
B. Fraudulent statements made to courts.
C. Fraudulent statements made to a client in connection with performing an audit.
D. Negligence in performing an audit or in the construction of a financial statement.
E. Fraud in performing an audit.

The Securities Exchange Act of 1934 imposes liability for making fraudulent statements to the SEC.

Which of the following must be shown in order to establish a violation of Section 20(a) of the Securities Exchange Act? 
A. There was a primary violation by a controlled person.
B. The defendant controlled the primary violator.
C. The defendant in a meaningful way participated in the primary violation.
D. All the above.
E. There was a primary violation by a controlled person and the defendant controlled the primary violator, but not that the defendant in a meaningful way participated in the primary violation.

Under Section 20(a), to establish liability, the plaintiff must show (1) there was a primary violation by a controlled person; (2) the defendant controlled the primary violator; and (3) the defendant participated in a meaningful way in the primary violation.

Which of the following is true regarding any affirmative defenses available under Section 20(a) of the Securities Exchange Act? 
A. There are no affirmative defenses available.
B. Comparative negligence is an affirmative defense.
C. Contributory negligence is an affirmative defense.
D. An affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.
E. Comparative negligence and contributory negligence are affirmative defenses, and also an affirmative defense exists when the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the underlying violation or cause of action.

Regarding affirmative defenses, section 20(a) allows defendants to avoid liability when "the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the [underlying] violation or cause of action."

Which of the following requires accountants to use adequate procedures so that they can detect illegal acts committed by an audited company? 
A. The Private Securities Litigation Reform Act
B. The Public Securities Auditing Reform Act
C. The Public Detection Act
D. The Accountant Crime Deterrence Act
E. The Fraud and Illegality Deterrence Act

The Private Securities Litigation Reform Act (PSLRA) placed new statutory obligations on accountants by requiring that they use adequate procedures when performing an audit so that they can detect any illegal acts committed by the audited company.

Which of the following is false regarding the Private Securities Litigation Reform Act? 
A. The act sets forth a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity when conducting an audit.
B. The act makes no reference to notifying the SEC of wrongdoing although it does reference notifying the applicable company's board of directors.
C. The act states that accountants are liable for the portion of the damages for which they are responsible.
D. In the event of a willful violation of the act, the SEC can seek an injunction against the accountant.
E. Under the act, an accountant's silence when the accountant thinks he or she might have discovered fraud is enough to constitute aiding and abetting.

The Private Securities Litigation Reform Act lists a specific set of actions and guidelines an accountant must follow after identifying a potentially illegal activity. Depending on the circumstances, the accountant must immediately notify the board of directors, the audit committee, or the SEC.

Which of the following was created by the Sarbanes-Oxley Act to obtain greater government oversight of public accounting firms? 
A. The Public Accounting Firms Oversight Commission
B. The Public Company Accounting Oversight Board
C. The Securities Review Board
D. The Auditing Analysis and Review Board
E. The Certified Public Accountant Commission

The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board establishing greater oversight of public accounting firms.

Which of the following may be held liable in a malpractice action? 
A. Accountants
B. Doctors
C. Real estate brokers
D. Architects
E. All of the above may be held liable for malpractice.

Accountants are not the only professionals likely to be sued for malpractice. Doctors may be sued for malpractice. Attorneys, lawyers, real estate brokers, architects, and other professionals may also be liable for breach of contract or negligence if they fail in their contractual obligations or do not perform their duty according to the standards of their professions, and another person is harmed.