CPA - Ethics Questions and Correct Answers/ Latest Update / Already Graded

Page |1


CPA - Ethics Questions and Correct
Answers/ Latest Update / Already Graded
Clients may recover from breach of contract if:

Ans: *Accountant agreed to perform services professionally


*Accountant breached agreement


*Client suffered damages, and


*Breach proximately caused the damages


Recovery of fee for Breach of Contract

Ans: *Can't recover if major breach


*Recoverable minus damages if it was minor


Damages that clients can recover for Breach of Contract or Negligence

Ans: Compensatory, not punitive


Clients may recover for negligence if:


All rights reserved © 2025/ 2026 |

, Page |2


Ans: *Accountant owed a duty of due care


*Accountant breached the duty


*Client suffered damages, and


*Breach proximately caused the damages


Standard for Negligence

Ans: That degree of judgment and skill possessed by a
reasonable accountant under all the circumstances.


Fraud Liability for 3rd parties

Ans: *Accountant misrepresented a fact (or failed to disclose)


*Accountant acted with Scienter (intent to deceive)


*Plaintiff relied on false stmt or omission


*Damages


*Proximate cause
All rights reserved © 2025/ 2026 |

, Page |3



Actual vs. Constructive Fraud

Ans: Actual Fraud- acct knows stmt is false


Constructive Fraud- acct has no reasonable grounds to believe
the stmt is true (signing off on FS audit w/o auditing)


Damages recoverable under Fraud cases

Ans: Compensatory AND Punitive damages


Constructive Fraud

Ans: Reckless disregard or Gross Negligence


Restatement of Torts rule (Majority rule)

Ans: 1)Information being supplied to the client will be given to
or is for the benefit of a LIMITED GROUP of third persons


2)The information will influence those third persons in a
specific transaction or type of transaction


The Reasonable Foreseeability Approach

All rights reserved © 2025/ 2026 |