WGU D216 BUSINESS LAW FOR ACCOUNTANTS EXAM] – QUESTIONS
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1. A CPA firm is being sued for professional negligence. Which of the following elements
must the plaintiff prove to establish a successful claim against the accountant?
A. That the accountant acted with actual malice.
B. That a duty of care existed, a breach occurred, and damages were suffered as a
proximate result.
C. That the accountant violated a criminal statute.
D. That the accountant failed to maximize the client’s tax savings.
To establish professional negligence (malpractice), the plaintiff must prove the four elements
of negligence: duty, breach, causation, and damages. Malice is generally associated with
fraud, not negligence.
2. Under the Sarbanes-Oxley Act, how long must auditors retain work papers related to a
public company audit?
A. 3 years
B. 5 years
C. 7 years
D. 10 years
Section 802 of the Sarbanes-Oxley Act requires auditors to maintain audit work papers for a
period of seven years from the end of the fiscal period in which the audit was concluded.
3. Which type of authority allows an agent to act on behalf of a principal based on the
principal’s manifestations to a third party?
A. Express authority
B. Implied authority
C. Apparent authority
D. Ratification
Apparent authority arises when a principal’s conduct leads a third party to reasonably believe
an agent has authority, even if no actual authority exists. Express and implied are forms of
actual authority.
4. A contract that is missing an essential element, such as consideration, is generally
considered:
A. Voidable
,B. Unenforceable
C. Void
D. Valid
A contract missing a required legal element (offer, acceptance, consideration, capacity,
legality) is void ab initio, meaning it has no legal effect from the beginning.
5. Which of the following best describes the "Ultramares" doctrine in accountant liability?
A. Accountants are liable to all foreseeable users of financial statements.
B. Accountants are liable only to those in privity of contract with the accountant.
C. Accountants are only liable if they engage in gross negligence.
D. Accountants are liable to any third party who relies on the statements.
The Ultramares doctrine limits an accountant’s liability for negligence to those parties with
whom the accountant is in direct privity (the client) or who are intended third-party
beneficiaries.
6. Under the UCC, which of the following is considered a "good"?
A. Corporate stocks
B. A contract for consulting services
C. An industrial generator
D. Real estate
The Uniform Commercial Code (UCC) applies to the sale of goods, defined as tangible,
movable personal property. Services, real estate, and intangible assets like stocks are generally
excluded.
7. Which of the following is a primary defense against a claim of fraud?
A. Lack of privity
B. Contributory negligence
C. Absence of scienter
D. Comparative negligence
Scienter (intent to deceive) is a required element of fraud. If an accountant did not act with
intent to deceive, the claim of fraud fails. Privity is not a defense to fraud.
8. When an accountant discovers an illegal act during an audit, what is the primary ethical
obligation under GAAS?
A. Report it immediately to the SEC.
B. Determine the impact on the financial statements and communicate with the audit
committee.
C. Resign immediately to avoid liability.
, D. Ask the client to adjust the records without documentation.
Auditors must assess the materiality and impact of illegal acts on financial statements and
ensure that those charged with governance (the audit committee) are adequately informed.
9. In a general partnership, what is the liability of the partners for business debts?
A. Limited to their initial capital contribution.
B. Unlimited joint and several liability.
C. They are only liable for their percentage of ownership.
D. They have no personal liability.
In a general partnership, each partner is personally responsible for the debts and obligations
of the partnership, regardless of their individual capital contribution.
10. Which of the following best describes the "Statute of Frauds"?
A. A law preventing fraudulent accounting practices.
B. A requirement that certain contracts must be in writing to be enforceable.
C. A rule governing the sale of securities.
D. A regulation regarding audit independence.
The Statute of Frauds requires specific types of contracts (e.g., land sales, contracts lasting
over a year, sale of goods over $500) to be in writing to be legally enforceable.
11. An accountant provides a negligent opinion on a financial statement. Under the
Restatement (Second) of Torts, to whom is the accountant liable?
A. Only the client.
B. Any person who reads the report.
C. A limited class of persons whom the accountant knew would rely on the information.
D. No one, due to limited liability protections.
The Restatement (Second) of Torts expands liability beyond privity to include known third-
party users who the accountant intended to influence with the financial statements.
12. Which document creates an agency relationship?
A. A power of attorney
B. An article of incorporation
C. A bill of lading
D. A prospectus
A power of attorney is a formal document that grants an agent the authority to act on behalf
of a principal.
AND ANSWERS | VERIFIED AND WELL DETAILED ANSWERS PLUS
RATIONALES | GUARANTEED PASS | LATEST EXAM UPDATE | EXAM
PREP | STUDY GUIDE | PRACTICE TEST| DOWNLOAD INSTANT PDF
1. A CPA firm is being sued for professional negligence. Which of the following elements
must the plaintiff prove to establish a successful claim against the accountant?
A. That the accountant acted with actual malice.
B. That a duty of care existed, a breach occurred, and damages were suffered as a
proximate result.
C. That the accountant violated a criminal statute.
D. That the accountant failed to maximize the client’s tax savings.
To establish professional negligence (malpractice), the plaintiff must prove the four elements
of negligence: duty, breach, causation, and damages. Malice is generally associated with
fraud, not negligence.
2. Under the Sarbanes-Oxley Act, how long must auditors retain work papers related to a
public company audit?
A. 3 years
B. 5 years
C. 7 years
D. 10 years
Section 802 of the Sarbanes-Oxley Act requires auditors to maintain audit work papers for a
period of seven years from the end of the fiscal period in which the audit was concluded.
3. Which type of authority allows an agent to act on behalf of a principal based on the
principal’s manifestations to a third party?
A. Express authority
B. Implied authority
C. Apparent authority
D. Ratification
Apparent authority arises when a principal’s conduct leads a third party to reasonably believe
an agent has authority, even if no actual authority exists. Express and implied are forms of
actual authority.
4. A contract that is missing an essential element, such as consideration, is generally
considered:
A. Voidable
,B. Unenforceable
C. Void
D. Valid
A contract missing a required legal element (offer, acceptance, consideration, capacity,
legality) is void ab initio, meaning it has no legal effect from the beginning.
5. Which of the following best describes the "Ultramares" doctrine in accountant liability?
A. Accountants are liable to all foreseeable users of financial statements.
B. Accountants are liable only to those in privity of contract with the accountant.
C. Accountants are only liable if they engage in gross negligence.
D. Accountants are liable to any third party who relies on the statements.
The Ultramares doctrine limits an accountant’s liability for negligence to those parties with
whom the accountant is in direct privity (the client) or who are intended third-party
beneficiaries.
6. Under the UCC, which of the following is considered a "good"?
A. Corporate stocks
B. A contract for consulting services
C. An industrial generator
D. Real estate
The Uniform Commercial Code (UCC) applies to the sale of goods, defined as tangible,
movable personal property. Services, real estate, and intangible assets like stocks are generally
excluded.
7. Which of the following is a primary defense against a claim of fraud?
A. Lack of privity
B. Contributory negligence
C. Absence of scienter
D. Comparative negligence
Scienter (intent to deceive) is a required element of fraud. If an accountant did not act with
intent to deceive, the claim of fraud fails. Privity is not a defense to fraud.
8. When an accountant discovers an illegal act during an audit, what is the primary ethical
obligation under GAAS?
A. Report it immediately to the SEC.
B. Determine the impact on the financial statements and communicate with the audit
committee.
C. Resign immediately to avoid liability.
, D. Ask the client to adjust the records without documentation.
Auditors must assess the materiality and impact of illegal acts on financial statements and
ensure that those charged with governance (the audit committee) are adequately informed.
9. In a general partnership, what is the liability of the partners for business debts?
A. Limited to their initial capital contribution.
B. Unlimited joint and several liability.
C. They are only liable for their percentage of ownership.
D. They have no personal liability.
In a general partnership, each partner is personally responsible for the debts and obligations
of the partnership, regardless of their individual capital contribution.
10. Which of the following best describes the "Statute of Frauds"?
A. A law preventing fraudulent accounting practices.
B. A requirement that certain contracts must be in writing to be enforceable.
C. A rule governing the sale of securities.
D. A regulation regarding audit independence.
The Statute of Frauds requires specific types of contracts (e.g., land sales, contracts lasting
over a year, sale of goods over $500) to be in writing to be legally enforceable.
11. An accountant provides a negligent opinion on a financial statement. Under the
Restatement (Second) of Torts, to whom is the accountant liable?
A. Only the client.
B. Any person who reads the report.
C. A limited class of persons whom the accountant knew would rely on the information.
D. No one, due to limited liability protections.
The Restatement (Second) of Torts expands liability beyond privity to include known third-
party users who the accountant intended to influence with the financial statements.
12. Which document creates an agency relationship?
A. A power of attorney
B. An article of incorporation
C. A bill of lading
D. A prospectus
A power of attorney is a formal document that grants an agent the authority to act on behalf
of a principal.
