CPA Regulation (REG) : Business Law - General
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #1 : Contract Law
Which of the following pairs of elements must a client prove to hold an accountant liable for common law fraud?
Material misrepresentation and breach of contract.
Freedom from contributory negligence and loss.
Scienter and justifiable reliance.
Intent to deceive and perjury.
Scienter and justifiable reliance.
Common law fraud requires five elements all to be met: 1) misrepresentation of a material fact by the defrauding party; 2) scienter (intent to deceive); 3) intent to induce reliance; 4) reasonable reliance, and 5) actual damages to another party.
Example Question #2 : Contract Law
Which of the following circumstances generally will cause a discharge of contractual duties by operation of law?
Accord and satisfaction
Novation
Anticipatory retaliation
Impossibility of performance
Impossibility of performance
“Operation of law” refers to legal consequences of events based on legal principles, rather than from an individual’s action or a court order. In the event that performance becomes impossible (e.g., a person contracted to provide services dies or becomes incapacitated), this necessarily discharges the duties of performance.
Example Question #3 : Contract Law
If a party to a contract engages in an anticipatory repudiation of the contract, which of the following statements is correct?
The repudiation is a material breach of the contract.
The repudiating party cannot retract the anticipatory repudiation.
The other party cannot take action against the repudiating party until the time for performance has passed and performance has not occurred.
The other party never has a duty to mitigate any losses resulting from the repudiation.
The repudiation is a material breach of the contract.
Anticipatory repudiation occurs when a party declares that he or she does not intend to fulfill the obligations of a contract. This creates a material breach wherein the other party may take action prior to the repudiating party’s attempt at performance. The repudiating party may retract the repudiation unless the other party has cancelled or materially changed the contract.
Example Question #4 : Contract Law
In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be:
Legally sufficient
Of approximately equal value
Fair and reasonable under the circumstances
Exchanged simultaneously by the parties
Legally sufficient
To be effective, consideration must be legally sufficient which means something that the law recognizes as consideration.
Example Question #1 : Contract Law
ABC offered, in writing, to sell DEF a parcel of land for $200,000. If ABC dies, the offer will:
Remain open for a reasonable time period after ABC’s death
Automatically terminate despite DEF’s prior acceptance
Automatically terminate prior to DEF’s acceptance
Terminate prior to DEF’s acceptance only if DEF received notice of ABC’s death
Automatically terminate prior to DEF’s acceptance
The death of an offeror prior to acceptance terminates the offer by operation of law without notice to the offeree.
Example Question #1 : Business Law General
The statute of limitations time period would begin from which of the following dates if there is a breach in a construction contract?
The date the contract is declared
The date the work began
The date the contract is signed
The date the contract is breached
The date the contract is breached
The statute of limitations begins when the contract is breached when the wrongdoing has begun. None of these other dates would be the starting period.
Example Question #2 : Business Law General
The registration requirements of the Securities Act of 1933 are intended to provide information to the SEC to enable it to:
Assure investors of the accuracy of the facts presented in the financial statements.
Ensure that investors are provided with adequate information on which to base investment decisions.
Prevent public offerings of securities when management fraud or unethical conduct is suspected.
Evaluate the merits of the securities being offered.
Ensure that investors are provided with adequate information on which to base investment decisions.
The primary goal of the Securities Act of 1933 is to ensure that investors have sufficient information in order to inform investment decisions; the SEC does not assure the accuracy of the information or assess the financial merits of it.
Example Question #3 : Business Law General
Under the Securities Act of 1933, the registration of an interstate securities offering is:
Mandatory, unless the cost to the issuer is prohibitive.
Required only in transactions involving more than $500,000.
Intended to prevent the marketing of securities which pose serious financial risks.
Required, unless there is an applicable exemption.
Required, unless there is an applicable exemption.
Several securities do not require registration, such as a Certificate of Deposit, securities issued by a governmental or non-profit organization, insurance policies, or short-term commercial paper (with a maturity of less than nine months). Issuer cost, riskiness, and dollar amounts are irrelevant with respect to the registration requirement.
Example Question #3 : Federal Securities Regulations
Under the liability provisions of Section 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?
Negligently approving a reporting corporation’s incorrect internal financial forecasts.
Negligently filing a reporting corporation’s tax return with the IRS.
Intentionally failing to notify a reporting corporation’s audit committee of defects in the verification of accounts receivable.
Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.
Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.
Section 18 of the 1934 Act addresses only intentionally false or misleading representations in a registration statement.
Example Question #4 : Federal Securities Regulations
An accuracy related penalty applies to the portion of tax underpayment attributable to A) Negligence or a disregard of the tax rules or regulations B) Any substantial understatement of income tax:
Neither
A
B
Both
Both
Accuracy-related penalties apply to the portion of tax underpayments attributable to negligence or disregard of tax rules and regulation as well as to any substantial understatement of income tax.
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