McDonald Bradley J. - Wiley CPA Examination Review 2013 Focus Notes, Regulation

CONTENTS

Copyright 2013 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada.

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Preface

This publication is a comprehensive, yet simplified study program. It provides a review of all the basic skills and concepts tested on the CPA exam, and teaches important strategies to take the exam faster and more accurately. This tool allows you to take control of the CPA exam.

This simplified and focused approach to studying for the CPA exam can be used:

• As a handy and convenient reference manual
• To solve exam questions
• To reinforce material being studied

Included is all of the information necessary to obtain a passing score on the CPA exam in a concise and easy-to-use format. Due to the wide variety of information covered on the exam, a number of techniques are included:

• Acronyms and mnemonics to help candidates learn and remember a variety of rules and checklists
• Formulas and equations that simplify complex calculations required on the exam
• Simplified outlines of key concepts without the details that encumber or distract from learning the essential elements
• Techniques that can be applied to problem solving or essay writing, such as preparing a multiple-step income statement, determining who will prevail in a legal conflict, or developing an audit program
• Pro forma statements, reports, and schedules that make it easy to prepare these items by simply filling in the blanks
• Proven techniques to help you become a smarter, sharper, and more accurate test taker

This publication may also be useful to university students enrolled in Intermediate, Advanced and Cost Accounting; Auditing, Business Law, and Federal Income Tax classes; Economics, and Finance classes.

Good Luck on the Exam,
Ray Whittington, PhD, CPA

ABOUT THE AUTHOR

Ray Whittington , PhD, CPA, CMA, CIA, is the dean of the Driehaus College of Business at DePaul University. Prior to joining the faculty at DePaul, Professor Whittington was the Director of Accountancy at San Diego State University. From 1989 through 1991, he was the Director of Auditing Research for the American Institute of Certified Public Accountants (AICPA), and he previously was on the audit staff of KPMG. He previously served as a member of the Auditing Standards Board of the AICPA and as a member of the Accounting and Review Services Committee and the Board of Regents of the Institute of Internal Auditors. Professor Whittington has published numerous textbooks, articles, monographs, and continuing education courses.

ABOUT THE CONTRIBUTORS

Edward C. Foth , PhD, CPA, Administrator of the Master of Science in Taxation Program at DePaul University. Professor Foth is the author of CCH Incorporateds Study Guide for Federal Tax Course, Study Guide for CCH Federal Taxation: Comprehensive Topics , and coauthor of their S Corporation Guide . Professor Foth prepared the answer explanations to the multiple-choice and task-based simulation questions in Income Taxes, wrote new questions, selected the mix of questions, and updated items to reflect revisions in the tax law.

Brad McDonald , JD, is an instructor of Business Law and Statistics at Northern Illinois University. He has taught business law since 1987 and has taught the Business Law section of the Northern Illinois CPA review course since 1998. He wrote and revised most of the Business Law modules. He prepared and revised answer explanations for the multiple-choice and simulation questions.

An accountant may be liable under common law due to negligence or fraud.

A loss due to negligence occurs when an accountant violates the duty to perform professional services in a competent manner. NEG ligence may consist of

• N ondisclosure of information to a client
• E rrors previously discovered not being corrected
• G AAP not being followed

Best defense to common law negligence is that appropriate professional standards were followed.

Simple negligence

• Careless mistakes
• Defense of lack of privity may be available
  • But client and intended third-party beneficiaries have privity
  • Foreseen third parties have privity in majority of states under tort law
  • Foreseen third parties lack privity in states conforming to Ultramares case

Gross negligence

• Reckless disregard for the truth
• Lack of privity not valid as defense

Fraud refers to conduct that involves all of the following:

• Material f alse representation of fact
• Justifiable r eliance on the information
• A wareness of the false information by the accountant
• The falsity was made with the u ltimate intent to deceive
• The party must have suffered d amages

Scienter refers to the accountants knowledge of a false representation or material omission of fact with the intent to deceive.

Potential defenses against fraud include

• Lack of intent to deceive
• Immateriality

Lack of privity is not a valid defense