Thinking Strategically The Competitive Edge In Business Politics And Everyday Life 1st Edition Avinash K. Dixit, Barry J. Nalebuff - Solutions

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According to the standards of the profession, which of the following sources of information should a CPA consider before signing a client’s tax return?I. Information actually known to the CPA from the tax return of another client.II. Information provided by the client that appears to be correct
Which of the following acts by a CPA will not result in a CPA incurring an IRS penalty?a. Failing, without reasonable cause, to provide the client with a copy of an income tax return.b. Failing, without reasonable cause, to sign a client’s tax return as preparer.c. Understating a client’s tax
According to the profession’s ethical standards, a CPA preparing a client’s tax return may rely on unsupported information furnished by the client, without examining underlying information, unless the informationa. Is derived from a pass-through entity.b. Appears to be incomplete on its face.c.
According to the standards of the profession, which of the following statements is(are) correct regarding the action to be taken by a CPA who discovers an error in a client’s previously filed tax return?I. Advise the client of the error and recommend the measures to be taken.II. Withdraw from the
According to the AICPA Statement on Standards for Tax Services, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?a. A CPA may recommend a position that the CPA concludes is frivolous as long as
A CPA will be liable to a tax client for damages resulting from all of the following actions excepta. Failing to timely file a client’s return.b. Failing to advise a client of certain tax elections.c. Refusing to sign a client’s request for a filing extension.d. Neglecting to evaluate the
In general, if the IRS issues a 30-day letter to an individual taxpayer who wishes to dispute the assessment, the taxpayera. May, without paying any tax, immediately file a petition that would properly commence an action in Tax Court.b. May ignore the 30-day letter and wait to receive a 90-day
A CPA owes a duty toa. Provide for a successor CPA in the event death or disability prevents completion of an audit.b. Advise a client of errors contained in a previously filed tax return.c. Disclose client fraud to third parties.d. Perform an audit according to GAAP so that fraud will be uncovered.
A CPA who prepares clients’ federal income tax returns for a fee musta. File certain required notices and powers of attorney with the IRS before preparing any returns.b. Keep a completed copy of each return for a specified period of time.c. Receive client documentation supporting all travel and
Clark, a professional tax return preparer, prepared and signed a client’s 2010 federal income tax return that resulted in a $600 refund.Which one of the following statements is correct with regard to an Internal Revenue Code penalty Clark may be subject to for endorsing and cashing the client’s
Which, if any, of the following could result in penalties against an income tax return preparer?I. Knowing or reckless disclosure or use of tax information obtained in preparing a return.II. A willful attempt to understate any client’s tax liability on a return or claim for refund.a. Neither I
A tax return preparer may disclose or use tax return information without the taxpayer’s consent toa. Facilitate a supplier’s or lender’s credit evaluation of the taxpayer.b. Accommodate the request of a financial institution that needs to determine the amount of taxpayer’s debt to it, to be
A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate tax return information, if the disclosure is madea. To enable a third party to solicit business from the taxpayer.b. To enable the tax processor to electronically compute the taxpayer’s liability.c. For
A penalty for understated corporate tax liability can be imposed on a tax preparer who fails toa. Audit the corporate records.b. Examine business operations.c. Copy all underlying documents.d. Make reasonable inquiries when taxpayer information appears incorrect.
Kopel was engaged to prepare Raff’s 2009 federal income tax return. During the tax preparation interview, Raff told Kopel that he paid $3,000 in property taxes in 2009. Actually, Raff’s property taxes amounted to only $600. Based on Raff’s word, Kopel deducted the$3,000 on Raff’s return,
To avoid tax return preparer penalties for a return’s understated tax liability due to an intentional disregard of the regulations, which of the following actions must a tax preparer take?a. Audit the taxpayer’s corresponding business operations.b. Review the accuracy of the taxpayer’s books
Vee Corp. retained Water, CPA, to prepare its 2010 income tax return. During the engagement, Water discovered that Vee had failed to file its 2005 income tax return. What is Water’s professional responsibility regarding Vee’s unfiled 2005 income tax return?a. Prepare Vee’s 2005 income tax
Which of the following acts constitute(s) grounds for a tax preparer penalty?I. Without the taxpayer’s consent, the tax preparer disclosed taxpayer income tax return information under an order from a state court.II. At the taxpayer’s suggestion, the tax preparer deducted the expenses of the
The Sarbanes-Oxley Act of 2002 requires rotation of the audit partner on a public company audit at least everya. 3 years.b. 5 years.c. 7 years.d. 10 years.I. Responsibilities of Tax Return Preparers
Generally a Form 8-K must be filed with the SECa. Annually.b. Quarterly.c. Within four days of the occurrence of a triggering event.d. Within 10 days of the occurrence of a triggering event.
Under the Sarbanes-Oxley Act, which of the following individuals are required personally to certify to the accuracy of financial statements filed with the SEC?a. The chief financial officer and the chief executive officer.b. The chief financial officer, the chief executive officer, and the
The Sarbanes-Oxley Act includes all of the following provisions, except:a. Penalties for failure to retain audit workpapers.b. Requirement for registration of CPA firms to audit public companies.c. Requirement for inspection of public-company audits.d. Requirement for a minimum level of experience
Which of the following Boards has the responsibility to regulate CPA firms that audit public companies?a. Auditing Standards Board.b. Public Oversight Board.c. Public Company Accounting Oversight Board.d. Accounting Standards Board.
Which of the following nonattest services are auditors allowed to perform for a public company?a. Bookkeeping services.b. Appraisal services.c. Tax services.d. Internal audit services.
Bran, CPA, audited Frank Corporation. The shareholders sued both Frank and Bran for securities fraud under the Federal Securities Exchange Act of 1934. The court determined that there was securities fraud and that Frank was 80% at fault and Bran was 20% at fault due to her negligence in the audit.
The Private Securities Litigation Reform Acta. Applies only to securities not purchased from a stock exchange.b. Does not apply to common stock of a publicly held corporation.c. Amends the Federal Securities Act of 1933 and the Federal Securities Exchange Act of 1934.d. Does not apply to preferred
Lin, CPA, is auditing the financial statements of Exchange Corporation under the Federal Securities Exchange Act of 1934. He detects what he believes are probable material illegal acts. What is his duty under the Private Securities Litigation Reform Act?a. He must inform the principal shareholders
Which of the following is an auditor required to do under the Private Securities Litigation Reform Act concerning audits under the Federal Securities Exchange Act of 1934?I. Establish procedures to detect material illegal acts of the client being audited.II. Evaluate the ability of the firm being
Which of the following is an auditor not required to establish procedures for under the Private Securities Litigation Reform Act?a. To develop a comprehensive internal control system.b. To evaluate the ability of the firm to continue as a going concern.c. To detect material illegal acts.d. To
McGee is auditing Nevus Corporation and detects probable criminal activity by one of the employees. McGee believes this will have a material impact on the financial statements. The financial statements of Nevus Corporation are under the Securities Exchange Act of 1934.Which of the following is
Which of the following acts allows civil suits with the potential recovery of treble damages?a. The Racketeer Influenced and Corrupt Organizations Act.b. The Securities Act of 1933.c. The Securities Exchange Act of 1934.d. Federal tax acts.F. Responsibilities of Auditors under Private Securities
A CPA may be held criminally liable under any of the following, except:a. The Securities Act of 1933.b. Common law.c. The Racketeer Influenced and Corrupt Organizations Act.d. Federal tax laws.
Which of the following statements concerning an accountant’s disclosure of confidential client data is generally correct?a. Disclosure may be made to any state agency without subpoena.b. Disclosure may be made to any party on consent of the client.c. Disclosure may be made to comply with an IRS
A violation of the profession’s ethical standards most likely would have occurred when a CPAa. Issued an unqualified opinion on the 2002 financial statements when fees for the 2001 audit were unpaid.b. Recommended a controller’s position description with candidate specifications to an audit
Thorp, CPA, was engaged to audit Ivor Co.’s financial statements.During the audit, Thorp discovered that Ivor’s inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial. Ivor claimed accountant-client privilege to prevent Thorp from
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA who has purchased the CPA’s tax practice.II. Another CPA firm if the information concerns suspected tax return irregularities.III. A state CPA society voluntary quality control
To which of the following parties may a CPA partnership provide its working papers without either the client’s consent or a lawful subpoena?The IRS The FASBa. Yes Yesb. Yes Noc. No Yesd. No No
To which of the following parties may a CPA partnership provide its working papers, without being lawfully subpoenaed or without the client’s consent?a. The IRS.b. The FASB.c. Any surviving partner(s) on the death of a partner.d. A CPA before purchasing a partnership interest in the firm.
Which of the following statements is correct regarding a CPA’s working papers? The working papers must bea. Transferred to another accountant purchasing the CPA’s practice even if the client hasn’t given permission.b. Transferred permanently to the client if demanded.c. Turned over to any
Which of the following statements is correct with respect to ownership, possession, or access to a CPA firm’s audit working papers?a. Working papers may never be obtained by third parties unless the client consents.b. Working papers are not transferable to a purchaser of a CPA practice unless the
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart’s financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay’s opinion was included in Dart’s registration statement. Larson
Under Section 11 of the Securities Act of 1933, which of the following standards may a CPA use as a defense?Generally accepted accounting principles Generally accepted fraud detection standardsa. Yes Yesb. Yes Noc. No Yesd. No No
Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acteda. Negligently.b. With independence.c. Without due diligence.d. Without good faith.
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart’s financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay’s opinion was included in Dart’s registration statement. Larson
Danvy, a CPA, performed an audit for Lank Corporation. Danvy also performed an S-1 review to review events subsequent to the balance sheet date. If Danvy fails to further investigate suspicious facts, under which of these can he be found negligent?a. The audit but not the review.b. The review but
Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As a result of Ocean’s negligence in conducting the audit, the financial statements included material misstatements. Ocean was unaware of this fact. The financial statements and Ocean’s unqualified opin-ion were
Under Section 11, which of the following must be proven by a purchaser of the security?Reliance on the financial statements Fraud by the CPAa. Yes Yesb. Yes Noc. No Yesd. No No
Under Section 11, a CPA usually will not be liable to the purchasera. If the purchaser is contributorily negligent.b. If the CPA can prove due diligence.c. Unless the purchaser can prove privity with the CPA.d. Unless the purchaser can prove scienter on the part of the CPA.
If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled toa. Damages of three times the original public offering price.b. Rescind the transaction.c. Monetary damages only.d. Damages, but only if the shares were resold before the suit was started.
In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove thata. Jay knew of the misstatements.b. Jay was negligent.c. The misstatements contained in Dart’s financial statements were material.d. The unqualified opinion contained in
Beckler & Associates, CPAs, audited and gave an unqualified opinion on the financial statements of Queen Co. The financial statements contained misstatements that resulted in a material overstatement of Queen’s net worth. Queen provided the audited financial statements to Mac Bank in connection
Quincy bought Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth & Co., CPAs, gave an unqualified opinion on Teal’s financial statements that were included in the registration statement filed with the SEC. Quincy sued Worth under the provisions of the 1933
In a suit by a purchaser against Larson for common law fraud, Larson’s best defense would be thata. Larson did not have actual or constructive knowledge of the misstatements.b. Larson’s client knew or should have known of the misstatements.c. Larson did not have actual knowledge that the
In a suit by a purchaser against Larson for common law negligence, Larson’s best defense would be that thea. Audit was conducted in accordance with generally accepted auditing standards.b. Client was aware of the misstatements.c. Purchaser was not in privity of contract with Larson.d. Identity of
Under the Ultramares rule, to which of the following parties will an accountant be liable for negligence?Parties in privity Foreseen partiesa. Yes Yesb. Yes Noc. No Yesd. No No
A CPA audited the financial statements of Shelly Company. The CPA was negligent in the audit. Sanco, a supplier of Shelly, is upset because Sanco had extended Shelly a high credit limit based on the financial statements which were incorrect. Which of the following statements is the most correct?a.
In a common law action against an accountant, lack of privity is a viable defense if the plaintiffa. Is the client’s creditor who sues the accountant for negligence.b. Can prove the presence of gross negligence that amounts to a reckless disregard for the truth.c. Is the accountant’s client.d.
If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA based ona. Negligence.b. Gross negligence.c. Strict liability.d. Criminal deceit.
Which of the following elements, if present, would support a finding of constructive fraud on the part of a CPA?a. Gross negligence in applying generally accepted auditing standards.b. Ordinary negligence in applying generally accepted accounting principles.c. Identified third-party users.d.
A CPA’s duty of due care to a client most likely will be breached when a CPAa. Gives a client an oral instead of written report.b. Gives a client incorrect advice based on an honest error of judgment.c. Fails to give tax advice that saves the client money.d. Fails to follow generally accepted
Assuming that Yoke prevails in proving negligence by Edgar in this case, which of the following is the most accurate statement about the damages that would be awarded? Assume that no other party, including Yoke, was found to be partially responsible for the losses.a. Edgar would be responsible for
Which of the following would not likely be part of Edgar’s defense in this lawsuit?a. Contributory negligence.b. Performance of the engagement in accordance with Statement for Accounting and Review Services.c. A review cannot be relied upon to detect fraud.d. Misrepresentations by management.
What would be essential to proving Yoke’s case against Edgar?a. Failure to adhere to generally accepted auditing standards.b. Reckless disregard for professional standards.c. Ordinary negligence in the performance of the review.d. Gross negligence in the performance of the review.
Under which of the following sources of law would this lawsuit likely be filed?a. The Securities Act of 1933.b. The Securities Exchange Act of 1934.c. Common law.d. State securities law.
When performing an audit, a CPA will most likely be considered negligent when the CPA fails toa. Detect all of a client’s fraudulent activities.b. Include a negligence disclaimer in the client engagement letter.c. Warn a client of known internal control weaknesses.d. Warn a client’s customers
When performing an audit, a CPAa. Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.b. Must strictly adhere to generally accepted accounting principles.c. Is strictly liable for failing to discover client fraud.d. Is not liable unless
Ford & Co., CPAs, issued an unqualified opinion on Owens Corp.’s financial statements. Relying on these financial statements, Century Bank lent Owens $750,000. Ford was unaware that Century would receive a copy of the financial statements or that Owens would use them to obtain a loan. Owens
Which of the following statements best describes whether a CPA has met the required standard of care in conducting an audit of a client’s financial statements?a. The client’s expectations with regard to the accuracy of audited financial statements.b. The accuracy of the financial statements and
Cable Corp. orally engaged Drake & Co., CPAs, to audit its financial statements. Cable’s management informed Drake that it suspected the accounts receivable were materially overstated.Though the financial statements Drake audited included a materially overstated accounts receivable balance, Drake
A member of the AICPA is convicted of filing a fraudulent tax return. What is the likely consequence of this action?a. The CPA will likely be expelled or suspended from membership in the AICPA.b. The CPA will likely be admonished by the AICPA.c. The CPA will likely have his or her permit to
Which of the following may not result in automatic expulsion from the AICPA?a. Revocation of CPA certificate by an authorized body.b. Filing a fraudulent tax return.c. Failure to file a required tax return.d. Conviction for a felony or a misdemeanor.
If the casino raised the chance to 1 in 30,000, then the payoff ratio would be very favorable at 1.33. But people watching others play the machine would almost always see a person dropping quarter after quarter with no success. A very natural conclusion would be that this is one of the least
Since this is our final case, we can admit that we do not have the answer—and even if we did, we probably wouldn’t share it. Nonetheless, strategic thinking can help make a more educated guess. The trick is to put yourself into the casino owners’ shoes. They make money only when people play
We begin by looking at some of the causes of economic inequality. First, there is luck. This can be of two kinds. Some people are born with some innate talent or advantage over others. Even among those who start equal in these respects, fortune favors the endeavors of some more than others. Many
Imagine for a moment that criminals are able to preempt the simultaneity and make a strategic move. They would commit not to carry guns. In this sequential game, homeowners do not have to predict what criminals will do. They would see that the criminals’ move has been made, and they are not
The trick is simply to rent rather than sell the new medallions. That way, nobody is paying for any future value which might later be appropriated. The mayor has an incentive to restrict the number of rental medallions, because if he rents too many, the total rent will fall, potentially all the way
The libertarian principle leads the players into a prisoners’ dilemma.Rosencrantz’s unconditional preference for having red bedroom walls is the analogue of a dominant strategy. Whichever color Guildenstern picks, Rosencrantz does better choosing red. Under libertarianism, society allows him
The prosecutor, Ms. Fairstein, and the Levin family would prefer to see a guarantee that Chambers get some sentence and be found guilty, than leave the outcome in the hands of an increasingly random jury, or worse, risk getting no result and having to go through a retrial.The defense side,
You are looking to maximize your chance of winning. The following table gives your probability based on who does what.Where did these numbers come from? When both teams bid 7 no trump, you will win unless you fail and they make it, which is a one-in-four possibility;hence you have a three-fourths
With two parents and one child, we have a three-person game. Teamwork can help the parents make an honest threat to punish a misbehaving child. Say the son misbehaves, and the father is scheduled to carry out the punishment. If the son attempts to rescue himself by pointing out the "irrationality"
An established firm wants to convince potential new competitors that the business would not be profitable for them. This basically means that if they entered, the price would be too low to cover their costs. Of course the established firm could simply put out the word that it would fight an
UNITED STATES V. ALCOA An established firm in an industry stands to gain by keeping out new competition. Then it can raise prices to monopoly levels. Since monopoly is socially harmful, the antitrust authorities try to detect and prosecute firms that employ strategies to deter rivals from entering
As before, any child who fails to meet the quota is disinherited. The problem is what to do if all of them are below the quota. In that case, give all of the estate to the child who visits the most. This will make the childrens' reduced visiting cartel impossible to maintain. We have put the
This is an example of the slippery slope. Once you start sliding, it is hard to recover. It is better not to take the first step unless you know where you are going.The game has one equilibrium, in which the first bid is a dollar and there are no further bids. But what happens if the bidding starts
Depending upon the circumstances, the tragedy of the commons could be a many-person prisoners’ dilemma (each person grazes too many cows) or a spillover problem (too many people choose to become herdsmen).The economist’s favorite solution would be the establishment of property rights. This is
he trick is to see that all that matters is the sum of the waiting time. We are not concerned with who waits. (In other circumstances, we might want to weigh the waiting times by the monetary value of time for those caught in the jam.) The simplest way to figure out the total extra waiting time is
What would happen if one gasoline station decided to advertise its unleaded gas price in big numbers? Motorists find it too difficult to read anything but the numbers. As a result, they assume it is the leaded gas price being advertised.Typically, unleaded gas is about five cents a gallon more
Saudi Arabia has an incentive to cooperate for purely selfish reasons. If they produce a low output, the market price rises and the profit margins go up for all members of OPEC. If they had only a small share in OPEC’s total output, they would not find it profitable to provide this “public
In this problem, it does not matter how much money you make, just how long you can make it. The firm that can hang on the longest can force out its more profitable rival as soon as duopoly profits begin to turn negative.As suggested in the hint, if David can hold on until the third quarter of 1989
The USFL does not have a dominant strategy. Its best move is always to play during the NFL’s off season. Clearly this is not independent of what the NFL does. The NFL, however, does have a dominant strategy. It prefers the fall season independent of the USFL’s choice; observe that the numbers
Many proposals do the trick. Here’s one of them. Sea Shells’ restructuring proposal has the following three cases:If the proposal passes unanimously, then Sea Shells chooses an entirely new board. Each board member replaced is given a small compensation.If the proposal passes 4 to 1, then the
Although backward reasoning is the safe way to solve this problem, we can jump ahead a little by using some forward-looking arguments. We start by examining each of Larry’s options in turn. What happens if Larry shoots at Mo? What happens if Larry shoots at Curly?If Larry shoots at Mo and hits,
The government announces that it will go after evaders in alphabetical order.The person with surname Aaron knows that he would be singled out for punishment if he failed to register. The certainty of punishment is then enough to motivate him to register. Then the Abrams conclude that since all of
It is true that the bidders dislike the uncertainty associated with how much they might have to pay if they win. Each is in fact worse off. Yet, in spite of the risk, participants should still bid their true valuations. The reason is that a truthful bid is a dominant strategy. As long as the
In this case, we expect the outcome to differ radically from 50:50. Because management has the sole power to propose, it is in the much stronger bargaining position. Management should be able to get close to the entire amount and reach agreement on the first day.To predict the bargaining outcome,
One reason is that without a line-item veto, the president is committed to taking what the Congress gives him; he cannot modify it piecemeal to better suit his preferences. Consequently, compromises made in Congress will be honored without fear that the president will pick and choose what segments
As in the case of the commuters, the equilibrium does not maximize the combined income of dentists. But society cares about the consumers of dentistry as well as the practitioners. In fact, left alone, the market solution at E is the best for society as a whole.The reason is that there are two side
Our understanding of brinkmanship is unlikely to please either side. When the goal is to prevent a nuclear war, the policy should not have any effect. The increased chance of a conventional conflict escalating should be exactly offset by a decrease in the probability of initiating a conventional
First combine the information on the probabilities of success and the point score value of success to construct a table of the average point scores. The scores listed are from the Allied perspective; the German scores can be taken as the negative of these numbers, as the sides’ interests are
Leasing serves as a commitment device that enables IBM to keep prices high. The leasing contracts make it much more costly for IBM to lower its price.When its machines are on short-term leases, any price reduction must be passed along to all customers, not just the ones who haven’t yet bought.

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Thinking Strategically The Competitive Edge In Business Politics And Everyday Life 1st Edition Avinash K. Dixit, Barry J. Nalebuff - Solutions

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