CNA Business Law and Ethics Flashcards

Under the concept of 'piercing the corporate veil,' courts may hold shareholders personally liable when:

Answer: Corporate formalities are ignored and the entity is used to commit fraud

Courts pierce the corporate veil and impose personal liability on shareholders when the corporate form is abused to commit fraud or when formalities like separate accounts and meetings are disregarded.

An accountant who knowingly prepares a false financial statement used to deceive investors may be held liable under:

Answer: The Securities Exchange Act of 1934 for securities fraud

The Securities Exchange Act of 1934 and related SEC rules impose civil and criminal liability for intentional misrepresentations in financial statements used in securities transactions.

The ethical concept of 'independence in appearance' for auditors means that:

Answer: The auditor must avoid situations that a reasonable observer would view as compromising objectivity

Independence in appearance requires auditors to avoid relationships or circumstances that could lead a reasonable, informed third party to doubt their impartiality.

Which contract clause limits one party's liability for damages to a specified dollar amount or type of loss?

Answer: Limitation of liability clause

A limitation of liability clause caps the maximum damages one party can recover from the other, commonly used in service agreements to manage risk exposure.

Under the Dodd-Frank Wall Street Reform Act, whistleblowers who report securities violations to the SEC may be entitled to:

Answer: Monetary awards ranging from 10% to 30% of sanctions exceeding $1 million

Dodd-Frank established an SEC whistleblower program that awards between 10% and 30% of monetary sanctions collected in successful enforcement actions exceeding $1 million.

Which of the following best describes a 'conflict of interest' in professional accounting ethics?

Answer: A situation where personal or financial interests could improperly influence professional judgment

A conflict of interest arises when a professional's personal, financial, or other interests could compromise — or appear to compromise — their objective professional judgment.