Question

Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts

A) With integrity.
B) In accordance with industry standards.
C) Without good faith.
D) Honestly and ethically.

Answer 1

A CPA may be liable under Section 10(b) of the Securities Exchange Act of 1934 if they act without good faith. The Sarbanes-Oxley Act of 2002 increased financial reporting requirements to protect investors from accounting fraud, in response to major corporate scandals.

Step-by-step explanation:

Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts without good faith. This means that if a CPA knowingly or recklessly provides false information or omits material information regarding securities, they can be held legally responsible for fraud. Section 10(b) is designed to protect investors and maintain market integrity by prohibiting deceptive and manipulative practices in the buying and selling of securities.

Significant accounting scandals, such as those involving Enron, Tyco International, and WorldCom, led to the enactment of the Sarbanes-Oxley Act in 2002. The legislation aimed to bolster the reliability of financial reporting and safeguard investors from accounting fraud by implementing stricter auditing and disclosure requirements for public companies. CPAs must adhere to these standards to prevent fraud and uphold investor confidence in the financial markets.