ExpertMedium1 markMultiple Choice
CPA · Question 07 · Area 1: Ethics & Procedures
Which of the following defenses would be most effective for a CPA accused of common law fraud by a client?
Which of the following defenses would be most effective for a CPA accused of common law fraud by a client?
Answer options:
A.
The client was contributorily negligent.
B.
There was no privity of contract.
C.
The CPA had a good faith belief that the misrepresentation was true.
D.
The misrepresentation was not material.
How to approach this question
Recall the elements of fraud (MAIDS): Material misrepresentation, Actual reliance, Intent to induce reliance, Damages, Scienter. Lack of Scienter (intent) defeats fraud.
Full Answer
C.The CPA had a good faith belief that the misrepresentation was true.✓ Correct
The CPA had a good faith belief that the misrepresentation was true.
To prove fraud, the plaintiff must show Scienter (intent to deceive or reckless disregard for the truth). If the CPA acted in good faith, Scienter is missing.
Common mistakes
Confusing defenses for negligence (like contributory negligence) with defenses for fraud.
Practice the full CPA REG Practice Exam
72 questions · hints · full answers · grading
More questions from this exam
Q01Under Circular 230, which of the following scenarios represents a permissible contingent fee arra...HardQ02A CPA is preparing a tax return for a client who wishes to take a position that the CPA believes ...MediumQ03Regarding the retention of client records under Circular 230, which of the following statements i...HardQ04Under the Ultramares rule regarding accountant liability to third parties for negligence, which o...MediumQ05Taxpayer A filed their Year 1 tax return on April 15, Year 2. The return omitted ,000 of gross in...Medium