1. 给各位学友的提示： 1- 红底或橙底而白字的要点是我做题时曾经出过错的点。 2- 本脑图是基于Wiley教材的基本结构 3- 到今天为止，我没有去考过REG，但是我的几个朋友高分通过了REG。 如果有人有想不通的REG题目，可以在我博客上留言或评论， 我可以找人帮你解释。 4- 有谁有兴趣共同维护，可以在我微博留言。
2. Business Law
2.1. Federal Security Act and Antitrust Law
2.1.1. A:Security Act of 1933
2.1.1.1. purpose: full and fair disclosure of al m/i about issuance and prevent fraud
2.1.1.2. SEC require registration statement for public sell or security interstate commerce; prospectuses; provide liability
2.1.1.2.1. can subpoena witness
2.1.1.2.2. can obtain injunction to prevent sell
2.1.1.2.3. no monetary penalty assess w/o court proceedings
2.1.1.2.4. no prosecute criminal acts
2.1.1.2.5. registration
2.1.1.2.6. security (others' effort)
2.1.1.2.7. controlling person : power influence by ownership, contract , position...
2.1.1.2.8. insider : officer, director, beneficial owner >10%
2.1.1.2.9. underwriter (not dealer)
2.1.1.2.10. non-security [IS IT A INVESTMENT?????]: CD (a type of cp) securities are defined broadly to include limited partnership interests, stock options, and warrants in addition to stocks, bonds, and investment contracts. A general partnership interest is not generally a security because this interest is not normally just an investment but involves efforts and decisions of the general partner.
2.1.1.3. Transaction exempt from registration (still under antifraud, may under 1934)
2.1.1.3.1. by individual investor, broker(NO solicitation)
2.1.1.3.2. Regulation D
2.1.1.3.3. factors need to consider: $, inv, ad, resell, report(notice), owner,period
2.1.1.3.4. sell or offer by person other than issuer, underwriter, or dealer
2.1.1.4. Security exempt from registration (still subject to anti-fraud)
2.1.1.4.1. commercial paper <9 month
2.1.1.4.2. 5mil in 12m with notice, unaudited circular under Regulation A
2.1.1.4.3. govern,bank,quasi govern, saving/loan association, farmer, coops, common carriers (NO public utility) nonprofit religious, educational, charitable ,
2.1.1.4.4. NO commission, same issuer exchange
2.1.1.4.5. cert issued by receiver, trustee in bankruptcy, issurance and annuity contracts (security issued by insurance company is NOT)
2.1.1.4.6. under Regulation D, an issuer of up to $5 million in securities issued within a 12-month period need not provide any specified information if the issuance is offered solely to accredited investors. If any unaccredited investors purchase the securities (up to 35 are allowed) the issuer must provide audited financial statements.
2.1.1.5. liability for false or misleading
2.1.1.5.1. anti-fraud provision
2.1.1.5.2. civil liability
2.1.1.5.3. criminal liability
2.1.1.6. Even though the accountant was not liable for the work in the regular audits, the accountant can be held liable for either fraud or negligence or both in the S-1 Review whenever the facts are present to support them. This is true even though the S-1 Review is not a full audit.
2.1.1.7. If an issuer fails to meet the disclosure requirements of the Securities Act of 1933, the buyer may ask for rescission of the sale.
2.1.2. B: Security Exchange Act of 1934
2.1.2.1. SEC require registration statement for 1) national public sell or 2) security interstate commerce >10 mil and 500 sh 3) issuer required to registrated in 1933
2.1.2.1.1. revoke/suspend registration
2.1.2.1.2. denial of registration
2.1.2.1.3. trade injunction
2.1.2.1.4. sanction individual violate foreign law; identify large trader
2.1.2.1.5. registration
2.1.2.1.6. report
2.1.2.1.7. proxy solicitation
2.1.2.1.8. tender offer
2.1.2.1.9. short-swing profit (6 month after insider purchase)
2.1.2.2. Security exempt from registration (still subject to anti-fraud)
2.1.2.2.1. govern, state guaranteed, federal charter bank,quasi saving/loan association, common carriers, industrial developed bond
2.1.2.3. liability for false or misleading
2.1.2.3.1. anti-fraud provision
2.1.2.3.2. civil liability
2.1.2.3.3. criminal liability
2.1.2.3.4. Bankruptcy Abuse Prevention and Consumer Protection Act 2005 prohibit discharge of any debt incurred in violation of security law
2.1.2.3.5. private may recover from att, acc and other shares ; rescind contracts
2.1.2.3.6. status limitation extended for security fraud
2.1.2.3.7. FCPA
2.1.2.3.8. Regulation Fair Disclosure: equal data to avoid conflict interest of analyst
2.1.2.3.9. 10b-5: encourage to disclose useful infor to inv; deter fraud
2.1.3. C: Sarbanes-Oxley Act of 2002
2.1.3.1. Section 906 : CEO or CFO cert report fully comply security law and fairly present f/s
2.1.3.1.1. knowingly miscert:1mil and/or 10 years
2.1.3.1.2. willful violating cert: 5mil and/or 20 year
2.1.3.1.3. SEC freeze payment
2.1.3.1.4. SEC prevent unfit from serving
2.1.3.1.5. CEO、CFO give up bonus,profit of sale of stock 12 months before (and during period) restate
2.1.3.2. Section 302: maintain I/C and disclose SD to auditor and ac
2.1.3.2.1. mgmt evaluate change of I/C
2.1.3.3. amend 1934 : illegal to give loan to or for officer/director
2.1.4. D:Internet Security Offering (ISO) Direct Public Offering (DPO) (small business security on website avoid i-bank paper work for small/big business and investor)
2.1.5. E: Eletronic Signatures and Electronic Records (legal effect of signature and retention is still in electronic)
2.1.6. F: State "Blue Sky" law registration, anti-fraud, comply in addition to federal law, not exempt for state
2.1.7. G: Antitrust Law
2.1.7.1. to promote economic and effcient production and distribution, fairness, and give consumer wider choice
2.1.7.2. normal contract in restraint of trade is illegal
2.1.7.3. exceptions
2.1.7.3.1. seller of business (reasonable time/area)
2.1.7.3.2. partner/employee to partnershp/employer
2.1.7.3.3. buyer or lessee of property
2.1.7.3.4. labor union
2.1.7.3.5. patents (20);design patents(14)
2.1.7.3.6. copy right (life+70);publisher (95afterPub or 20 aftercrea;trademark renewals if used
2.1.7.3.7. US exports could coop; state allow quotas on oil
2.1.8. H: Sherman Act of 1890 Contracts... in restraint of trade are illegal form of monopoly is illegal
2.1.9. I: Clayton Act of 1914 supplement Sherman to prohibit corp buy stock to competitor; 1950 phohibit buy asset (unless acquired is failing)
2.1.9.1. anticompetitive/per se violation
2.1.9.2. merger, price discrimination (seller liable), interlocking, tying, exclusive dealing
2.1.9.3. judicial: competition is lessen or not; quantitative;qualitative
2.1.10. J: Federal Trade Commision Act of 1914: exclusive authority on antitrust
2.1.11. K: Robinson-Patman Act of 1936 amend Clayton on price discrimination (seller and buyer liable)
2.1.12. Gramm-Leach-Bliley 格雷姆-里奇-比利雷法（GLB Act）也就是1999年的金融现代化法案，它是在美国颁布的一项法律， 用于控制金融机构处理个人信息的方式，这项法案包括三部分：财产保密条例、安全措施条例、托辞供应。 其中财产保密条例，用于管制对私人财产信息的搜集和泄露；安全措施条例， 用于保证财政机构必须实现对私人信息的安全保护；托辞供应用于禁止使用不正当的托辞访问私人信息。 GLB法还要求金融机构给顾客一个书面的保密协议，以说明他们的信息共享机制。
2.2. Business Structure
2.2.1. A: Sole Proprietorship 1 owner, 1 legal entity, 1 decision making, no formal filling, personal tax; capital from borrowing and unlimited liability
2.2.2. B: Partnership >=2, co-owner of business (no passive co-owner of property) 1-equally unless stated, share of profit (rebutted by sharing profit narrowly use); 2- joint-control: equal right 3- RUPA: partner is not co-owner of p/s property 4- fiduciary relationship btw; contract relationship, informal arrangement, agency law 5-corp, minor, p/s could be partner 6-pass thru tax, unlimited liability
2.2.2.1. C:Types of Partnership and Patrtner in GP/S, all p share mgt and unlimit to creditor in Limit p/s: >=1 gp +>=1LP LP contribute contribute capital, no mgt;
2.2.2.1.1. IN GPS, both ownership and profit might be unequally.
2.2.2.2. D: Formation of Partnership share profit imply share loss share gross receipt not establish p/s no filling, no written, fictitious name
2.2.2.3. E: Partner's Rights P-Interest = share of profit and return of contribution, is personal property. only right to use ps property; assignable w/o consent but assignee only get interest PS Property not assignable unless all agree p has indemnification to expense new partner has same right, need consent of all
2.2.2.3.1. silent p unlimited liable and can not manage
2.2.2.3.2. Specific partnership property is property owned as tenants in partnership with other partners. All partners have equal rights to the property and can possess or use the partnership property for partnership purposes. Partnership property is not assignable to a partner's individual creditors; Partnership property can only be assigned if all partners agree, or if the property is assigned for the apparent purpose of carrying on the business. Partnership property is not subject to attachment by the partner's individual creditors; Partnership property is generally only subject to attachment by a claim on the entire partnership.
2.2.2.4. F: Relationship to 3rd Party partner is agent, who can bind p/s to 3rdpty. apparent one make real one liable.
2.2.2.4.1. 是合伙人签了合同就是代表合伙签了, 伪代表和禁言的也算。 3rdpty could enforce contract even there is inside limitation. 合伙人超出“范围”带来的义务不被合伙接受。
2.2.2.4.2. admission new, amend agreement, and assignment of property need unanimous consent. Same as surety, guarantor, claim against p/s, submit claim,out of scope
2.2.2.4.3. partner is liable....they can split by agree but may be liable by creditor disregarding agreement. New p is iiable to existing debt to extent of capital. Partner withdrawing is till liable unless notice or constructive notice
2.2.2.4.4. when the third party knows that the partner with whom he deals lacks actual authority, there can be no apparent authority. With such knowledge, the third party can no longer reasonably believe that the partner has authority to represent the partnership.
2.2.2.5. G: Termination of a Partnership
2.2.2.5.1. agree or decree (breach agree or harm p/s)make dissolution happen except for assign, sell pledge p/i, then winding up
2.2.2.5.2. RUPA not support automatic dissolution in case of withdraw
2.2.2.5.3. order of winding up: 1- debt, 2-capital, 3- profit/loss
2.2.2.5.4. written agreement need for p/s beyond 1 year
2.2.2.6. H: Limited Partnership
2.2.2.6.1. Under the Revised Uniform Limited Partnership Act and in the absence of a contrary agreement by the partners, Withdrawal of the only general partner could dissolve a limited partnership.
2.2.2.6.2. there be gp/s and lp/s, the latter need comply state statue with filling to state secretary otherwise it's gp/s.
2.2.2.6.3. limited p's liability is limited to amount of capital contribution. All p's contribution may be cash, services performed, property, promise to perform service, cash, property. Name of LP may not be used unless it's also a GP. 故意误用名字可能变GP;别人误会你是GP，你就承担GP责任 firm name include "limited partnership"
2.2.2.6.4. GP rule， LP invest; LP also acting as agent, consulting, approve amendments, voting, bring derivative lwassuit LOSS: percentage ( GP/S is equally) GP owe f/d to GLP; LP do not owe f/d since no mgmt
2.2.2.7. K: LImited Liability Partnership (LLP) GP LP LLP (each is LLP, own torts, p avoid others' liability)
2.2.2.7.1. partner has ll to others' tort
2.2.2.8. third party knows that the partner with whom he deals lacks actual authority, there can be no apparent authority. With such knowledge, the third party can no longer reasonably believe that the partner has authority to represent the partnership.
2.2.3. I: Joint Venture single business for profit, like a special p/s, no filling
2.2.4. J: Limited Liability Companies (LLC) RULLCA 2006 all members, limited liability to contribution, no personal liability, formality is not key must file
2.2.4.1. foreign LLC in other states in which it does business, and law where it formed RULE
2.2.4.2. LLC is separate legal entity can sue and be sued in own name.
2.2.4.3. Majority state, member divide profit in proportion to their contribution; RULLCA , members do it equally.
2.2.4.4. manage member has no right to compensation for services performed except for winding-up. Mangers in manager-managed and members in member-managed LLC has f/d
2.2.4.5. LLC has limited life
2.2.4.6. partners are fully liable only for their own negligent acts and for wrongful acts of those they supervise or have control over.
2.2.5. L: Subchapter C Corporation (C Corp) One is not S, it's C. C and S corp has limited liability to shareholder and corporate structure, but different tax treatment.
2.2.5.1. M: Characteristics and Advantages of Corporate Form LL, life, separate entity, financing, Income is taxed at corp level and dividend paid from after-tax income are taxed in sh level
2.2.5.2. N: Dis advantages of Corporate Business Structure TAX, cost, compliance, FSL, take-over
2.2.5.3. O: Types of Corporation domestic, foreign, professinal close corp may function without bod, sh meeting, like p/s, limited liability Defacto and de jure corp
2.2.5.3.1. professional corp, person has personal liability for professional act; only licensed professional are permitted own share under state law.
2.2.5.4. P: Formation of Corporation promoter form corp so it's not agent, has fiduciary relationshp
2.2.5.4.1. any agreement(pre-incorporation contracts) made bu promoter are not binding on the future corp until adopted after corp come into existence.
2.2.5.4.2. form under state statues, incorporation articles filled
2.2.5.4.3. Articles of Incorporation include name of registered agent, numbers of authorized shares
2.2.5.4.4. In both C and S, shareholders can contribute property into the corporation without being taxed.
2.2.5.5. Q: Corporate Financial Structure Uncertificated, authorized stock, issued. un issued, outstanding,
2.2.5.5.1. treasury stock: NO votable, NO dividend, corp has not gain or loss, purchased out of unreserved or unrestricted earned surplus CAN distributed as stock dividend, resold disregarding par value
2.2.5.5.2. Par value: creditor hold purchaser liable
2.2.5.5.3. Stated capital= numbers of share * par value (or stated value)
2.2.5.5.4. preferred stock: nonvoting, fix dividend rate, cumulative means if a periodic dividend is not paid on time, it accumulated and satisfied b4 c/s get dividend Callable (redeemable) may be redeemed by corp in fix rate. Convertible give prefer option to be common in fix rate.
2.2.5.6. R: Powers and Liabilities of Corporation
2.2.5.6.1. ultra vires are beyond scope. d&o may be sued buy sh or corp for it.
2.2.5.7. S: Directors and Officiers of Corporation
2.2.5.7.1. director select officer and declare dividend and may delegate authority, getting only director fee
2.2.5.7.2. director is liable for own torts even for corp. ordinary care and due deligence.
2.2.5.7.3. director owe f/d, so as officer
2.2.5.7.4. Conflict of interest only when all 3 gone: 1- transaction is fair and reasonable 2- majority sh approve 3-majority of uninterested BOD members approved
2.2.5.7.5. 1- corp may indemnify directors and officers against lawsuits based on their good faith actions for corp 2-corp is allowed to purchase liability insurance for its director and officer.
2.2.5.8. T: Stockholders' Rights
2.2.5.8.1. stock cert is negotiable instrument
2.2.5.8.2. preemptive right: only for c/s, not prefer, not treasure, not implied but A/I provided
2.2.5.9. U: Stockholders' liabilities
2.2.5.9.1. piercing the corporate veil: sh personal liabe
2.2.5.9.2. major and controller has f/d to minor and corp
2.2.5.9.3. shareholders must repay illegal distributions that they receive when the corporation is insolvent.
2.2.5.10. V: Substantial Change in Corporate Structure merger, consol, dissolution (filling)
2.2.5.10.1. requirements to accomplish a merger or consolidation: bod submit plan to sh both; both bod approve; both sh get plan; major sh vote; surviving get asset and liability; dissatisfied sh may dissent and assert appraisal right by receiving FV of stock.
2.2.6. W: Subchapter S Corporation only corp tax, US, 1 class, limit sh, no alien
2.2.7. a corporation is not liable on preincorporation contracts entered into on behalf of the corporation by the promoter unless and until the corporation approves and thereby adopts the contract of the promoter upon coming into corporate existence. However, the promoter is personally bound on these contracts. Even if the corporation adopts the contract, the promoter remains personally liable unless a novation occurs (i.e., third party agrees to look to corporation for satisfaction of the contract). However, if the promoter had clearly specified that he was contracting "in the name of the proposed corporation and not individually," the third party must rely solely on the credit of the proposed corporation and has no claim against the promoter individually.
2.3. Contracts
2.3.1. Offer
2.3.1.1. VALIDITY:may be oral, based on intent of offeror,
2.3.1.2. VALIDITY:Common Law: definite and certain
2.3.1.2.1. UCC: output or requirement contracts are considered reasonably definite
2.3.1.2.2. advertisement is invitation, not a offer
2.3.1.3. VALIDITY: communicated to offeree
2.3.1.4. Termination
2.3.1.4.1. Rejection
2.3.1.4.2. Death or insanity of either Destruction of subject Insolvnce or bankruptcy of either
2.3.1.4.3. illegality
2.3.1.5. Revocation:
2.3.1.5.1. Generally revoke anytime b4 acceptance A option is an offer , supported by consideration and cannot be revoked b4 stated time
2.3.1.5.2. Counteroffer is a rejection coupled with new offer by offeree
2.3.1.5.3. heard = been communicated: revocation aslo occurs when offeree learned by reliable means that the offer has sold the subjective.
2.3.1.5.4. Bilbo’s promise to forego suit would be sufficient consideration to create an option offer. An option offer is irrevocable for the stated time period.
2.3.1.6. The requirement is to identify the correct application of the statute of fraud to a contract for land. The contract for the land was formed but it would only be enforceable against Kram because Kram’s offer was written and signed. Under the common-law statute of frauds, the contract is not enforceable against Fargo because s/he orally accepted the offer rather than agreeing with a signed writing.
2.3.2. B: Types express, implied, executed, executory, Unilateral, Bilateral, Voidable
2.3.2.1. Unilateral offer exist when offeror expect offeree accept the offer by action. A contract formed when offeree perform as expected
2.3.3. D:
2.3.4. Acceptance
2.3.4.1. intent to accept
2.3.4.2. Common Law: unequivocal and unconditional
2.3.4.3. silence is not unless indicated, taken benefit
2.3.4.4. time
2.3.4.4.1. mailbox rule: if acceptance is made by method specified in offer or by same method used by offeror to communicate the offer, acceptance is effective when sent. The mailbox rile only make acceptance effective on dispatch. Revocation, rejection, and count-offer are effecctive upon receipt. If acceptance is valid when sent, a lost or delayed acceptance does not destroy validity. Offer can state otherwise.
2.3.4.5. Unilateral offer is accepted by action than promise Bilateral offer is accepted by a promise
2.3.4.6. UCC: a written and signed offer for sale of goods, by a merchant, giving assurance that it will be held open for specified time is irrevocable for that period. like 3 months option does not need merchant and not limited to 3 months Acceptance valid when sent if reasonable method used unless otherwise stated. Unequivocal acceptance of offer for goods is not neccesary in UCC
2.3.5. consideration an act, promise, or forbearanc that is offered as inducement to enter into agreement. msut be bargained for preexisting leagal duty is notsufficient
2.3.5.1. Common law apply to services, where modification of contract need new consideration by both parties to be legally binding
2.3.5.2. promissory estoppel: Charity to incurring large expense
2.3.5.3. A promise to donate money to a charity which the charity relied upon in incurring large expenditures is a situation involving promissory estoppel. Promissory estoppel acts as a substitute for consideration and renders the promise enforceable.
2.3.5.4. Under common law, modifications of contracts require new consideration on both sides. Since the subject matter of this contract is land, common law does apply. Even though Faxton gave new consideration by agreeing to pay the extra $10,000, Baxter did not give new consideration.
2.3.6. legal capacity
2.3.6.1. a minor's agreement is voidable
2.3.6.2. for nonnecessaries, when disaffirm, he is required to give back rest for necessarity, liable for reasonable value
2.3.6.3. Minor may disaffirm within reasonable time after reaching majority age
2.3.6.3.1. ratification before majority age is not effective
2.3.6.3.2. The requirement is to determine whether a binding contract existed with respect to Fresno. Since Fresno was not a minor, s/he is required to perform under the contract unless Bronson exercises his or her right to disaffirm the contract in a timely fashion. Bronson did not do this.
2.3.6.4. The entire contract must be ratified in order for ratification to be effective. This rule holds true regardless of whether a partial affirmation is in writing.
2.3.7. legality
2.3.7.1. although the agent’s act was outside the scope of his authority, the principal may, nevertheless, ratify the contract. Retention of the benefits of the contract constitutes implied ratification.
2.3.8. Reality of consent contract may be void when:
2.3.8.1. misrepresentation of a material fact
2.3.8.2. intent to mislead(scieter)
2.3.8.3. reasoanble reliance
2.3.8.4. damage
2.3.8.5. undue influence is a defense to make contract voidable
2.3.8.6. a unilateral mistake does not allow party to void contract. But a mistake unknown to the party make it voidable
2.3.9. assignment and delegation
2.3.9.1. assignment is right transfer
2.3.9.2. delegation is duty transfer
2.3.9.3. even though an assignee is not required to give the obligor notice of assignment, his/her failure to do so may affect his/her recovery on the contract right.
2.3.9.4. a duty to pay money can be delegated even though the delegatee is not as creditworthy as the delegator. This fact by itself does not mean that the delegation will materially change the risk of the other party, since the payment of money does not result in a materially different performance to the obligee.
2.3.10. 3rdpty beneficiary
2.3.10.1. creditor
2.3.10.1.1. A third-party beneficiary contract is created when two other parties enter into a contractual agreement that intentionally benefits a third party. In this case, Wagner (debtor) has contracted with an insurance company to benefit Union Bank (creditor beneficiary) upon Wagner's death. As a creditor beneficiary, Union Bank may recover the policy proceeds from the insurance company.
2.3.10.2. donee
2.3.10.3. incidental
2.3.11. remidies
2.3.11.1. When a buyer breaches the contract as it becomes due, the seller may recover the full purchase price of the goods identified to the contract plus incidental damages if the seller is unable to resell the goods at a reasonable price after making a reasonable effort. Thus, in this case, Zen would be allowed to recover the purchase price of $40,000 plus the $500 of incidental damages for storage.
2.3.11.2. The remedy of specific performance is used when money damages will not sufficiently compensate the afflicted party due to the unique nature of the subject matter of the contract. In a contract for the sale of land, the buyer has the right to enforce the agreement by seeking the remedy of specific performance because real property is considered unique. Another remedy for this breach of contract would be for the buyer to seek compensatory damages. If the buyer desires, s/he may seek this remedy instead of specific performance.
2.3.12. discharge of contract
2.3.12.1. A contract may be discharged by either an accord and satisfaction or a mutual decision. In an accord and satisfation both parties to the contract have agreed to satisfy the contract in a different faction. Mutual rescission means that both parties have mutually agreed to rescind or not go through with the contract.
2.3.13. statue of fraud need contract to be written
2.3.13.1. 1-land
2.3.13.2. 2- >1 year
2.3.13.2.1. COULD within 1year, not do within 1 year
2.3.13.2.2. The one year period begins from the date the contract is formed.
2.3.13.3. 3-debt
2.3.13.4. 4- >500 goods
2.3.13.5. The contract for the land was formed but it would only be enforceable against Kram because Kram’s offer was written and signed. Under the common-law statute of frauds, the contract is not enforceable against Fargo because s/he orally accepted the offer rather than agreeing with a signed writing.
2.3.14. Parol evidence rule: 合同书面之前的口头约定无效
2.3.14.1. 口头证据规则（parol evidence rule）的含义是，在合同的当事人订立了一个书面合同，把他们之间的最终协议用书面形式表达出来之后， 有关他们事先理解和协商合同内容的证据，无论是口头的还是其他形式的，都不能出于更改或对抗这一书面文件的目的而被援用。 口头证据规则是一条在英美法院的判决中得到普遍确认的规则。这一规则也得到了《统一商法典》的采纳。 这一规则及其例外的补充规则为法院采纳书面合同之外的用来补充合同内容的证据，即所谓“外部证据”（extrinsic evidence）,界定了一个范围。 口头证据规则所排斥的外部证据规则并不是仅限于口头表达的证据，即所谓的证言证据。 它所排除的，也包括当事人双方在最终协议达成之前书写的和交换的信件、电报、备忘录、和协议草案等书面证据。
2.3.15. The requirement is to identify the mistake that will make a contract unenforceable.: a mutual mistake of fact typically causes a contract to be unenforceable and allows it to be rescinded.
2.3.16. The parol evidence rule prohibits the presentation as evidence of any prior or contemporaneous oral statements for the purpose of modifying or changing a written agreement intended by the parties to be the final and complete expression of their contract. It would bar the admission of evidence which relates to a change in an unambiguous provision in the contract but would not bar the admission of evidence which clarifies an ambiguous provision.
2.3.17. . This contract could not be completed until 16 months after the making of the contract. Therefore, it had to be written since it fell under the Statute of Frauds since it could not be completed within 1 year of the making of the contract.
2.3.18. when Parker anticipatorily repudiated a contract, Stone could immediately sue for breach of contract or wait for performance on the appointed date, and then sue for breach if performance was not rendered.
2.3.19. the statute of limitations bars action at law on contracts unless they are brought within prescribed periods of time. In this case, if Diel did not bring an action against Stone before the statute of limitations had expired, the court would rule in favor of Stone and would not allow Diel to pursue the action further.
2.3.20. The fact that Milo had endorsed and deposited the check which Nord had conspicuously marked as constituting payment in full is of no effect since the obligation was a liquidated debt, instead of an unliquidated debt.
2.4. Sales
2.4.1. offer need quantity terms, not precise
2.4.2. 3 month irrevocable nature
2.4.3. if seller provides notice to buyer that shipments is only an accommodation, sellers' actions are not acceptance
2.4.4. written confirmation is sufficient as writing for merchant
2.4.5. oral SPECIALLY factured goods contract is enforceable
2.4.5.1. portion acceptance means accept portion
2.4.6. shipment of nonconforming is BOC
2.4.6.1. a seller has the right to “cure” nonconforming performance when there is still time left for performance under the contract. To do so a seller must seasonably notify the buyer of his intention to cure, and must tender conforming goods within the original time specified by the contract.
2.4.7. strict liability
2.4.7.1. under strict liability the only defenses available to a seller are misuse and assumption of risk. A buyer misuses a product when he uses it for some purpose other than the purpose for which the product was originally intended. Assumption of risk exists when an individual uses the product without regard to an inherent danger associated with the product. Privity of contract is not a defense under strict liability because the suit is not based on contract law.
2.4.7.2. product liability: a manu or seller may be responsible when a product is defective and cause injury or damage to person or property.
2.4.7.2.1. common carrier' liability is based on strict liability
2.4.7.2.2. strict liability: 1- seller selling 2- defective product 3- unreasonablly dangerous to plaintiff 4- caused injury
2.4.7.2.3. common carrier not liable to acts of GOD, acts of shipper, act of public enamy
2.4.7.3. the plaintiff must establish the following: (1) the seller was engaged in the business of selling the product, (2) the product was defective, (3) the defect was unreasonably dangerous to the plaintiff, and (4) the defect caused injury to the plaintiff.
2.4.8. warranty
2.4.8.1. the implied warranty of merchant-ability may be disclaimed by orally
2.4.8.2. Under the UCC, every seller warrants that the goods sold are free from any security interest or lien of which the buyer has no actual knowledge. This warranty of title may only be disclaimed by specific language or circumstances which give the buyer reason to know that s/he is receiving less than full title. A seller’s statement that s/he is selling only such right or title that s/he has will exclude the warranty of title.
2.4.8.3. under UCC, seller warrant good title, rightful transfer, freedom from any security interest or lien of which the buyer has no knowledge when the contract was made
2.4.8.4. in a sale by a merchant, the merchant warrants that the goods are free from a rightful claim of infringement of patent or trademark by third parties. (A seller will be protected against liability under a warranty against infringement if the buyer furnishes the specifications used to manufacture the product that infringes upon another party’s patent or trademark rights.)
2.4.9. . A seller who discovers that an insolvent buyer has received goods on credit may reclaim the goods by making a demand for their return within 10 days after receipt of the goods by the buyer. This 10-day limitation, however, does not apply if the buyer made a written misrepresentation of its solvency within 3 months prior to its receipt of the goods. Anker’s fraudulent financials constitute a written misrepresentation of solvency; therefore, Bold may demand return of the goods even though 14 days have passed.
2.4.10. ROL
2.4.10.1. “C&F” (cost and freight) shipping term means that the purchase price includes both the cost of goods and the cost of delivering the goods to the shipper. Under this agreement, the risk of loss and title to the goods pass when the seller places the goods in the appropriate carrier's hand.
2.4.10.2. merchant transfer rol when buyer physically take; non-merchant transfer it unon tender
2.4.10.2.1. nonconforming prevent ROL transfer
2.4.10.2.2. this case (evidenced by the treatment of the lease as a capital lease and as a sales-type lease by the lessee and the lessor, respectively) that a sale of the lathes is intended. If there is no agreement as to when title passes, then title passes when the seller completes performance with respect to the physical delivery of the goods. Thus, title to the lathes passed at the time Frey delivered the lathes to Tri Corp. and prior to the time Frey exercised the option.
2.4.10.3. Provided there is no agreement to the contrary and neither party is in breach, the shipping terms will determine which party bears the risk of loss in this situation. Since the shipping terms were FOB Wizard Suppliers (shipping point), the risk of loss passed to Lazur once the goods were delivered to the carrier.
2.5. Commercial Paper
2.5.1. Any transfer for value of an order instrument gives the transferee (Watson) the right to obtain an unqualified endorsement from the transferor
2.5.2. note
2.5.2.1. Kerrigan’s daughter does not qualify as a HDC because she did not give value. Therefore, Watson need not pay on the note because of the personal defense of breach of contract.
2.5.3. draft
2.5.4. HDC
2.5.5. negotiability
2.5.5.1. if an instrument contains a promise to do any act in addition to the payment of money, it is nonnegotiable. An exception to this rule occurs when the additional promise concerns providing security for the instrument. Granting to the holder an option to purchase land is an additional promise that does not concern the providing of security. Consequently, this second promise would destroy the negotiable aspect of the instrument.
2.6. Secured Transactions
2.6.1. A secured creditor has a security interest in the personal property of the debtor which is acting as collateral for the debt. In a bankruptcy proceeding, there is an order of priorities concerning distribution of the debtor’s estate. Secured creditors are given first priority in the sense that property subject to a valid security interest is not part of the estate for distribution purposes but belongs to the secured creditor to the extent of his security interest. The secured party can either take the property or its cash equivalent. If the value of the property is insufficient to satisfy the claim, the secured creditor becomes a general creditor for the balance.
2.6.2. Buyers in the ordinary course of business take free of any security interest whether perfected or not. In general, buying in the ordinary course of business means buying goods from the inventory of one that normally sells those goods.
2.6.3. attachment
2.6.4. perfection
2.6.4.1. A perfected security interest in certified securities can only be obtained by possession.Securities are documents that normally can be transferred very easily.
2.7. Bankruptcy
2.7.1. attoney fee:according to the Rules of Bankruptcy Procedure, it is necessary to file a proof of claims against the debtor’s estate. The filing must be timely (within a 6-month period) or the claim will be barred. A claim that is filed on time is given prima facie validity and is approved unless there is an objection by one of the creditors. The filing would include a statement of compensation paid or agreed.
2.7.2. under a Chapter 11 reorganization, a debtor is allowed to remain in possession of its business unless the court upon request by a party in interest appoints a trustee to take over management of the debtor’s business. The court will approve such a request when it appears gross mismanagement of the business has occurred, or that the takeover by a trustee would be in the best interest of the debtor’s estate.
2.7.3. The trustee has the power to set aside preferential transfers made to a creditor within 90 days before the filing of the bankruptcy petition while the debtor is insolvent. To be a preferential transfer, it must be a transfer for an antecedent debt that enables the creditor to receive more than s/he otherwise would have in a Chapter 7 liquidation. Since the creditor already had a perfected security interest in the equipment, he did not receive a preferential transfer because at that time the equipment had a fair market value greater than the note. This is true because perfected security interests have a priority above all others in the bankruptcy proceedings.
2.7.4. a debt arising before the filing of the bankruptcy petition due to the debtor’s negligence will be discharged in the proceedings
2.7.5. a trustee has the power to set aside preferential transfers made by the debtor to creditors. Preferential transfers are those made for antecedent debts which enable the creditor to receive more than s/he would have otherwise received under the liquidation proceedings. One exception to the trustee’s power to avoid preferential transfers is when a security interest is given by the debtor to acquire property that is perfected within 10 days after such security interest attaches. This is called an enabling loan. Consequently, Noll’s transaction with Knox qualifies as an enabling loan and cannot be set aside by the trustee.
2.7.6. secured creditors have first priority concerning the property acting as their collateral. The next $25,000 would be paid to the trustee ($15,000) and attorneys ($10,000) because administrative costs are first priority among unsecured creditors. Next, $20,000 of the remaining $20,800 ($50,800 - $5,000 - $25,000) would be distributed to claims arising in the ordinary course of the debtor’s business after the involuntary bankruptcy petition is filed but before the order for relief is entered, a gap creditor. Since Dart Corp. is the only remaining creditor which falls into this category, it will be paid the full $20,000 owed it, leaving $800 ($20,800 - $20,000). Of the remaining creditors, Boyd is given a higher priority since consumers’ deposits for undelivered goods or services (subject to a limit per individual) is given a higher priority than general, unsecured creditors. Thus, Boyd will receive the remaining $800.
2.7.7. A business reorganization under Chapter 11 of the Bankruptcy Code is an alternative to a straight bankruptcy. It may be commenced by either the debtor filing a voluntary petition or the creditors filing an involuntary petition.
2.7.8. The debtor’s bankruptcy estate includes property owned by the debtor when the bankruptcy petition is filed. It also includes property owed to the debtor as of the filing as well as income from property owned by the debtor. Additionally, property received by the debtor within 180 days after the petition is filed is part of the estate if it is received by inheritance, bequest, or devise, or from life insurance, a divorce decree, or a property settlement with one’s spouse.
2.7.9. discharge
2.7.9.1. the fact that the debt of a secured party was not fully satisfied from the proceeds obtained from disposition of the collateral will not result in a denial of a general discharge, nor will the remaining portion of the secured debt be nondischargeable. In such situations the secured party has the same priority as a general unsecured creditor (lowest priority) concerning the unpaid portion of the debt.
2.7.9.2. under the voluntary liquidation provisions of the Bankruptcy Code, a debt arising before the filing of the bankruptcy petition due to the debtor's negligence will be discharged in the proceedings. Note that had the debt been due to the debtor's willful and intentional torts, it would not be discharged in bankruptcy.
2.7.10. since preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.
2.7.11. priority
2.7.11.1. In this case the first $5,000 of the remaining assets would be paid to Noll Co. since secured creditors have first priority concerning the property acting as their collateral. The next $25,000 would be paid to the trustee ($15,000) and attorneys ($10,000) because administrative costs are first priority among unsecured creditors. Next, $20,000 of the remaining $20,800 ($50,800 - $5,000 - $25,000) would be distributed to claims arising in the ordinary course of the debtor’s business after the involuntary bankruptcy petition is filed but before the order for relief is entered, a gap creditor. Since Dart Corp. is the only remaining creditor which falls into this category, it will be paid the full $20,000 owed it, leaving $800 ($20,800 - $20,000). Of the remaining creditors, Boyd is given a higher priority since consumers’ deposits for undelivered goods or services (suibject to a limit per individual) is given a higher priority than general, unsecured creditors. Thus, Boyd will receive the remaining $800.
2.7.11.2. Of those claims listed in this question, the one that has the highest priority would be the employees' wages since they were earned within 90 days before the filing of the petition in bankruptcy and are less than the $5,400 maximum allowed per employee.
2.7.12. The requirement is to identify the act that a debt collector is prevented from performing. Once a debtor is represented by an attorney, the debt collector should communicate with that attorney rather than communicating with the debtor. Therefore, this answer is correct.
2.7.13. The debtor may regain possession of property in the possession of an interim trustee if the debtor files the bond requested by the court.
2.7.14. involuntary petition in bankruptcy, if not contested, will automatically result in the entry of an order for relief by the bankruptcy court.
2.7.15. Once a stock subscription contract agreement is accepted, the subscriber becomes liable for the stock purchase and as a corporate shareholder.
2.7.16. When a valid petition in bankruptcy is filed, it acts as an automatic stay which stops the collection of most debts and the enforcement of most legal proceedings against the debtor's estate. An automatic stay is valid against the garnishment of the debtor's wages. However, the automatic stay is not effective to prevent the collection of alimony.
2.8. Detor-Creditor Relationship
2.8.1. surety
2.8.1.1. Before paying the debt, the surety may seek the remedy of exoneration where the surety files a suit in equity to compel the debtor to pay the creditor. Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.
2.8.1.2. Tender of performance by debtor or surety and refusal by creditor will discharge surety.
2.8.1.3. The guaranty must be in writing to be enforceable under the Statute of Frauds. This is a promise to pay the debt of another.
2.8.1.4. The surety may generally exercise the defenses on the contract that would be available to the debtor such as the fraud committed against the debtor by the seller. The surety may also take advantage of his/her own contractual defenses such as the fraud committed against the surety by the seller.
2.8.1.5. The tender of performance by the principal debtor completely releases the surety from his obligation. However, such tender does not release the principal debtor if the contractual duty consists of the obligation to pay money. If the contractual duty consisted of anything but the obligation to pay money, then the tender of such performance would have also released Fairfax.
2.8.1.6. surety will be discharged by the creditor’s refusal to accept the principal debtor’s tender of full payment on a mature debt. However, the tender of full payment will not discharge the principal debtor but will merely stop the running of interest on the monetary obligation.
2.8.2. subrogation
2.8.2.1. The right of subrogation arises when the surety, pursuant to his contractual undertaking, fully satisfies the obligation of the principal debtor to the creditor and succeeds to the creditor’s rights against the debtor (i.e., "steps into the creditor’s shoes"). The surety acquires the identical claims or rights the creditor possessed against the principal debtor, permitting the surety to assert rights he otherwise could not assert.
2.9. Agency
2.9.1. The principal must be able to give legal consent.
2.9.2. . An agent, after the principal ratifies an unauthorized act, is acting within his authority and is free of any liability on the contract.
2.9.3. When the principal is undisclosed in an agency relationship, the agent generally has the same authority as if the principal were disclosed. The main difference is in the liability of the agent to third parties.
2.9.4. An agent owes a fiduciary duty to his/her principal. If the agent breaches this important duty, the principal may terminate the agency relationship. A constructive trust may be used as a remedial device.
2.9.5. termination
2.9.5.1. normally a principal has the power to terminate an agency relationship even though it would constitute a breach to do so. However, where the agency is an agency coupled with an interest (i.e., where the agent owns part of the subject matter, the principal does not have the power to terminate the relationship).
2.9.6. disclosure
2.9.6.1. either Magnus (the undisclosed principal) or Dexter (the agent) may be held liable on the contract for all land entered into by Dexter on Magnus’ behalf. Dexter executed the contract within the scope of the agency relationship and thus Dexter’s actions are binding on Magnus. Also, Dexter is liable on each of the contracts because he failed to disclose that he was acting as agent for Magnus Corporation.
2.9.6.2. As a fiduciary to the principal, an agent must act in the best interest of the principal. Therefore, the agent has an obligation to refrain from competing with or acting adversely to the principal, unless the principal knows and approves of such activity.
2.10. Regulation of Employment and Environment
2.10.1. it is the employer’s duty to withhold the employee’s share of FICA from employee’s wages and remit both the employee’s amount and the employer’s equal share to the government. If the employer neglects to withhold, the employer is still liable to pay both the employer’s and the employee’s taxes. The employer will then have the right to be reimbursed by the employees for their share.
2.10.2. Un-employment-NOFAULT
2.10.2.1. Unemployment compensation is generally available only to persons unemployed through no fault of their own.
2.10.3. fair labor
2.10.3.1. the Federal Fair Labor Standards Act provides that a minimum hourly wage be paid to each covered employee. The act also requires that a wage rate of not less than one and one-half times the regular rate be paid for hours worked beyond forty hours in any given work week except for those employed in agriculture, seasonal employment in recreation, or engaged in the delivery of health care services for the sick.
2.10.4. work compensation
2.10.4.1. the workers’ compensation statutes are intended to enable employees to recover for job-related injuries or diseases whether the employer is negligent or not.
2.10.5. retired
2.10.5.1. Returning to work after retirement can reduce an individual’s Social Security benefits.
2.11. Property
2.11.1. mortgage
2.11.1.1. A mortgage is an interest in real property used to secure payment for a loan. A mortgage must be delivered to the mortgagee to secure the obligation due to the mortgagee.
2.11.1.2. A mortgage is a security interest in real property usually used to secure a debt. The mortgage creates a nonpossessory lien on the property in favor of the mortgagee.
2.11.1.3. in order for a mortgage to be effective between the mortgagor (borrower) and mortgagee (lender), it must be signed only by the mortgagor.
2.11.1.4. Since Rusk purchased the mortgage from Fast without knowledge of the previous sale to Beal, under a notice-type recordation statute, upon default, Rusk has the first priority to the property. He is entitled to the full face amount of Watts note. Under a notice-type statute there was no need for Rusk to record his mortgage first, only to take his mortgage without notice of the prior assignment. The fact that Rusk paid only 75% of the face value of the note does not prevent him from receiving the full face value. Rusk merely paid a discounted amount for the right to receive the face value of the note.
2.11.1.5. A judicial foreclosure sale of the debtor’s real property is conducted generally at the direction of a court official (county sheriff) and confirmed by the court. A court will not refuse to confirm a sale merely because a higher price might have been received at a later time. The court will refuse to confirm a sale if the price is so low as to raise a presumption of unfairness or lack of protection for the mortgagor.
2.11.1.6. a mortgage is effective between the mortgagor and the mortgagee without recordation. Recordation of a mortgage serves only to protect the rights of the mortgagee against third parties who do not have actual notice of the mortgage.
2.11.2. bailment
2.11.2.1. The requirement is to identify the standard of liability that must be established to hold a warehouser liable for loss or damage to stored property. This is an example of a bailment for mutual benefit and the bailee must take reasonable care of the property in light of the facts and circumstances. Thus, the warehouser would be held liable for ordinary negligence.
2.11.3. lease
2.11.3.1. a residential lease agreement must contain the following essential elements: the parties involved, lease payment amount, lease term, and a description of the leased property.
2.11.3.2. Failing to provide utilities makes the premises uninhabitable and effectively forces the tenant to move.
2.11.4. IP
2.11.5. real property
2.11.5.1. recordation of a deed gives constructive notice “to the world” that title to the property has been conveyed. Therefore, the primary purpose of recording is to protect the grantee against subsequent purchasers by putting subsequent purchasers “on notice.” If the subsequent party claiming superior title had actual notice of the unrecorded deed, then the recordation objective would have been met and recordation of the deed would be irrelevant with regard to this particular party. An unrecorded deed is binding upon all persons having actual notice of its existence.
2.11.5.2. Title insurance insures against all defects of record and defects the grantee may be aware of. Thus, a title insurance company would be liable to a land purchaser for recorded easements.
2.11.5.3. a general warranty deed warrants the greatest number of things and thus provides a purchaser with the most extensive protection against defects of title. A general warranty deed warrants that (1) the seller has title and the power to convey the property described in the deed, (2) the property is free from any encumbrances, except as disclosed in the deed, and (3) the grantee (purchaser) will not be disturbed in his/her possession of the property by the grantor (seller) or some third party's lawful claim of ownership.
2.11.6. tenancy
2.11.6.1. The joint tenancy may only be severed by an inter vivos conveyance. Each joint tenant can sell his/her interest in the property without the prior consent of the other joint tenants. When this occurs, the conveyance destroys the joint tenancy and creates a tenancy in common between the remaining joint tenants and the third party. When Nunn conveyed his interest in the parcel of land to Ink, Green and Ink became owners as tenants in common. Each, as tenants in common, has a nonexclusive right to use and possess the property (undivided interests).
3. Professional and Legal Responsibilities
3.1. A:Permit by board of S/J
3.1.1. to audit issuer, registered in PCAOB
3.1.2. =AICPA"Code of Professional Conduct";Code apply all members
3.1.3. minimum requiement
3.2. B:Disciplinary Systems
3.2.1. PEEC interpret code立法
3.2.2. State board enforced state ethics rule
3.2.3. Joint trial board investigate and suggest action
3.2.3.1. acquittal
3.2.3.2. admonishment训诫
3.2.3.3. corrective action required
3.2.3.4. suspension <=2 years
3.2.3.5. expulsion
3.2.3.5.1. still practice?
3.2.3.5.2. justifying
3.2.3.5.3. automatic expusion
3.2.3.5.4. PED may investigate and remedy light violation
3.2.3.5.5. court consistently decide non-member ppl is expected to follow code
3.2.3.5.6. complaints refer to societies; state revoke and suspend licence
3.2.4. SEC commission action
3.2.4.1. SEC revoke or suspend if acc willfully violate FSL, unethically, unprofessionally
3.2.4.2. SEC revoke or suspend upon felony
3.2.4.3. SEC prohibit acc or firm from SEC client
3.2.4.4. SEC penalized acc with civil fine and pay profit gained from violation
3.2.5. Joint ethics enforcement : referrals of complaints
3.3. C: legal liability
3.3.1. common law liability to clients
3.3.1.1. breach of contract
3.3.1.1.1. fail to perform
3.3.1.1.2. client should not interfere or prevent audit performing
3.3.1.1.3. breach occur
3.3.1.2. negeligence
3.3.1.2.1. elements need to prove
3.3.1.3. not based solely on honest error; required at least negligence
3.3.1.4. fraud, gross negligence, constructive fraud
3.3.1.4.1. fraud
3.3.1.4.2. contributory negligence of client is not a defense of audit
3.3.1.4.3. privity of contract is not required by plaintiff
3.3.1.4.4. punitive damage may be added
3.3.1.4.5. constructive fraud (or gross negligence)
3.3.2. common law liability to 3rd party
3.3.2.1. privity of contract and ultramares rule
3.3.2.1.1. only liable to client or 3rd party beneficiaries since they are in privity of contract
3.3.2.1.2. anyone who can prove fraud may recover
3.3.2.1.3. minority rule
3.3.2.2. recently extended liability
3.3.2.2.1. acc is liable for foreseen party if negligence and is liable for any party if fraud
3.3.2.2.2. some court, acc is liable for foreseeable party if negligence
3.3.2.3. Even though the accountant was not liable for the work in the regular audits, the accountant can be held liable for either fraud or negligence or both in the S-1 Review whenever the facts are present to support them. This is true even though the S-1 Review is not a full audit.
3.3.2.4. The CPA will be liable for negligence to a third party only if it can be established that the party was intended to be the primary beneficiary. Since a CPA is generally liable to all third parties, including foreseen and foreseeable third parties, for fraud and constructive fraud, the third-party (primary) beneficiary rule is relevant only in those cases based on negligence.
3.3.3. statutory law liability to 3rd party -1933
3.3.3.1. acc is liable for untrue material fact or omission in registration statement or prpspectus
3.3.3.2. any purchaser may sue; 3rd party can sue without POC
3.3.3.3. section 11 imposed liability and proof required by plaintiff.
3.3.3.3.1. damage occurrd
3.3.3.3.2. material misstatement or omission
3.3.3.3.3. shift burden of proof to acc, however who might defense by proving 1in4: "due diligence", plaintiff knew, lack of causation or follow GAAS
3.3.3.4. damage-only diff
3.3.3.5. limitation
3.3.3.5.1. 1 year from discovery'or should discovery
3.3.3.5.2. 3 year after offer
3.3.3.6. negligence in review subsequent event
3.3.4. statutory law liability to 3rd party -1934
3.3.4.1. acc is liable in section 10 and 18 for security sold in national stock exchange
3.3.4.2. purchaser and seller may sue
3.3.4.3. section 10 : proof required by plaintiff.
3.3.4.3.1. damage occurrd
3.3.4.3.2. material misstatement or omission
3.3.4.3.3. no recovery if plaintiff is fraud
3.3.4.3.4. justified reliance
3.3.4.3.5. existence of scienter
3.3.4.4. damage-only diff
3.3.4.4.1. or diff btw paid and sold
3.3.4.5. section 18 : proof required by plaintiff.
3.3.4.5.1. damage occurrd
3.3.4.5.2. material misstatement or omission
3.3.4.5.3. read and rely on 10-k report
3.3.4.5.4. shift of burden of proof who prove in "good faith"
3.4. D: legal consideration
3.4.1. W/P
3.4.1.1. acc owned
3.4.1.2. custodial in nature to serve dual purpose
3.4.1.2.1. confidentiality:no transmission without client consent
3.4.1.2.2. acc retented
3.4.2. privileged communication
3.4.2.1. not in common law
3.4.2.1.1. few states have
3.4.2.1.2. Federal law does not have
3.4.2.1.3. exist when act as or hired by lawer
3.4.2.2. located in few states; intend to confidential; not waived
3.4.2.3. benefit client; waived-able; part allow, all lst
3.4.2.4. Code of professional conduct prohibit disclosure of confidential client data unless
3.4.2.4.1. client (each) consent
3.4.2.4.2. GAAP/GAAS
3.4.2.4.3. subpoena
3.4.2.4.4. quality review
3.4.2.4.5. responding to AICPA or state trial board
3.4.2.5. tax accrual file not protected
3.4.3. Illegal client act: duty to notify others
3.4.3.1. Form 8-K disclosure
3.4.3.2. disclosure to successor auditor
3.4.3.3. disclosure in response to subpoena
3.4.3.4. disclosure to funding agency for entities receiving governmental financial assistance
3.4.4. CPA cert is issued under state
3.4.5. acc is liable for self employee's act; insuranced
3.4.6. audit is not delegable
3.4.7. Basis of acc and client is relationship of independent contractor
3.4.8. insurance
3.4.8.1. insurance cover negligence
3.4.8.2. fidelity bond protect client from acc's fraud
3.4.8.3. client's insurance company is "client"
3.4.8.4. portion of debt incurred in violation not recovered
3.4.9. reliance: principal audit liable unless clear divided; no reliance on unaudited data
3.4.10. subsequent events or subsequent discovery
3.4.10.1. not liable
3.4.10.2. liable if fact existed at report date unless
3.4.10.2.1. immediate investigate
3.4.10.2.2. prompt revision
3.4.10.2.3. SEC or person be notified
3.4.10.3. liable if acc assure no material change after field or report date
3.4.11. liable for prepare unaudited statements
3.4.11.1. no procedure or insufficient
3.4.11.2. fail to mark each page
3.4.11.3. fail to issue disclaimer of opinion
3.4.11.4. fail to inform client of any discovery of amiss
3.5. E: Criminal Liability
3.5.1. Security ACT 1933 and security exchange Act 1934
3.5.1.1. guilty for willful illegal act: misleading omission of m/f; put false infor in registered
3.5.1.2. fine<=10,000 and/or prison <= 5 year
3.5.1.3. aids fraud;coverup prior year f/s
3.5.2. Internal Revenue Code
3.5.2.1. willfully prepare false return (perjury)
3.5.2.2. willfully assit other to evade tax (evasion)
3.5.3. RICO: Racketeer Influenced and Corrupt Organization
3.5.3.1. Racketeer include organized crime and fraud under FSL
3.5.3.2. 2 acts in 10 years
3.5.3.3. expanded to civil suit by private: treble damage and need not indictment
3.5.4. The theory of strict liability is used in some product liability cases but is not applicable when deciding the liability of the CPA.
3.6. F: Private Security Litigation Reform Act
3.6.1. 1934 required audit procedure
3.6.1.1. detect material i/a
3.6.1.2. identify material rpt
3.6.1.3. evaluate going-concern
3.6.2. detecting i/a, audit must notify ac or bod; bod has 1 day to notify SEC; if not, audit do
3.6.3. report to SEC protect audit from private civil suit
3.6.4. law reduced lawsuit
3.6.5. "SAfe harbor" for preparing forward looking statement, like projection,; need caution, assumption and condition to vary; it's to encourage meaningful infor.
3.6.6. discourage frivolous lawsuit
3.6.6.1. stringent pleading requirement
3.6.6.2. award cost
3.6.7. liability of defendant is proportionate to degree of fault (no more being deep pocket)
3.6.7.1. exception: 100% if knowingly cause harm
3.6.7.2. exception: portion+50% if principal insolvent
3.7. G: SOX ACT
3.7.1. Federal crime: willful no retention of w/p
3.7.1.1. retend 5/7 years
3.7.1.2. destroy or falsify w/p
3.7.1.3. fine and or prison <= 20 years
3.7.1.4. acc, att, consul, employee
3.7.1.5. sec update rule of retend w/p
3.7.1.6. mail fraud and wirefraud
3.7.2. PCAOB
3.7.2.1. nonprofit/ not federal agency
3.7.2.2. violation=1934
3.7.2.3. 2 be/been CPA + 3 nonCPA
3.7.2.4. no pay or profit from firm
3.7.2.5. SEC registant
3.7.2.6. function
3.7.2.6.1. register and inspect
3.7.2.6.2. standards
3.7.2.6.3. regulate nonaudit service
3.7.2.6.4. enforce compliance
3.7.2.6.5. investigate and discipline
3.7.2.6.6. prompt high standard and audit quality
3.7.2.6.7. ac pre-approve material services and disclosure
3.7.3. illegal even with ac approval
3.7.3.1. bookkeeping
3.7.3.2. fis design or implementation
3.7.3.3. appraisal
3.7.3.4. IA outsource
3.7.3.5. mgmt
3.7.3.6. actuarial
3.7.3.7. investment or broke-dealer
3.7.3.8. certain tax like planning for abusive tax shelter
3.7.3.9. board permitted to exempt (case by case) services
3.7.3.10. no specifically prohibited is permited
3.7.4. disclosure
3.7.4.1. disclose useful (SEC) infor on current basis
3.7.4.2. f/s to SEC incorporate all material correction
3.7.4.3. proforma disclosure recon to figure in GAAP
3.7.4.4. disclosure of o-bs-t
3.7.4.5. discosure CEO,CAO,CFO adopt code reason for not adopt
3.7.4.6. disclosure if director resign, refuse reelection, removed , disagreement
3.7.4.7. disclosure of new EO
3.7.4.8. more events reported on Form 8-k within 4 b-days after
3.7.5. others
3.7.5.1. issuer may not make loan to officer or directors
3.7.5.2. CPA registered in PCAOB
3.7.5.3. federal law agains destructing w/p
3.7.5.4. protect whitleblower, who can report to Ac
3.7.5.5. partner and second partner only work for 5 consecutive years
3.7.5.6. auditor report to ac
3.7.5.7. att report evidence of material violation to CEO,CLO , to ac, to bod
3.7.5.8. fraud official is still liable enven if bankrupt
3.7.6. SEC regulated
3.7.6.1. disclosure of diff proforma f/s and GAAP
3.7.6.2. "critical accounting policy" report to ac
3.7.6.3. NYSE/NASDAQ prohibit listing if ac failed requirement on auditor aoc; ac is independent; financial expert;
3.7.6.4. conflict of interest for analyst
3.7.6.5. petition court to freeze payment
3.7.6.6. SEC may censure or bar acc for
3.7.6.6.1. lack of qualification
3.7.6.6.2. improper conduct
3.7.6.6.3. willful violation of helping
3.7.7. CEO/CFO certify f/s
3.7.7.1. signing, true, no omission
3.7.7.2. i/c in place or sd disclosure
3.7.8. blackout period to limit funds transfer
3.8. tax return
3.8.1. CPA's liability
3.8.1.1. the proper procedure when a tax practitioner discovers an error in a client’s prior year tax return. A tax practitioner generally has a duty to inform the client upon discovering an error in the client’s previously filed tax return. A tax practitioner is not barred from preparing the current year’s return and has no obligation to notify the IRS of the error. It is the client’s decision whether or not to file an amended return to correct the error.
3.8.1.2. after providing tax advice to a client, the CPA cannot be expected to notify the client of any subsequent legislative changes which affect the advice previously provided. If, however, the obligation for the subsequent notification is specifically undertaken by agreement, the CPA is expected to notify the client of any such changes.
3.8.1.3. In order to avoid the negligence penalty, a preparer of a tax return must exercise due professional care in the discharge of his duties. If Boe is advised by Tint that the documentation exists and if, as the facts state, "Boe has no reason to believe that documentation of the travel and entertainment expenses is inadequate or nonexistent," then there is no evidence of negligence on Boe’s part and he will not be liable for the preparer’s negligence penalty.
3.8.1.4. A CPA may rely on information furnished by the client. The CPA is not required to examine or review documents or other evidence supporting the client's information, although the CPA is required to make reasonable inquiries where the information as presented appears to be incorrect or incomplete.
3.8.1.5. Statement on Standards for Tax Services No. 2 requires CPAs to make sure that a reasonable effort has been made to answer all questions on a tax return before the CPA signs the return. If a taxpayer leaves a question unanswered and reasonable grounds exist for not answering the question, the preparer need not provide an explanation for the omission
4. Federal TAXATION
4.1. Individual
4.1.1. Gross Income
4.1.2. Above Line Deduction
4.1.2.1. Support includes food, clothing, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent. Excluded from support are life insurance premiums, funeral expenses, nontaxable scholarships, and income and Social Security taxes paid from a dependent's own income.
4.1.3. item deduction
4.1.3.1. Since the cash gifts of $300 to church and $200 to the community college are only subject to the 50% of AGI limitation, they are fully deductible. The deduction for the gift of land is limited to 30% of AGI (30% x $35,000 = $10,500) because the land is appreciated capital gain property. Therefore, the total deduction for charitable contributions is $11,000.
4.1.4. TAX credit
4.1.4.1. The child and dependent care credit is a nonrefundable credit that may vary from 20% to 35% of the amount paid for qualifying household and dependent care expenses incurred to enable a taxpayer to be gainfully employed or look for work. Expenses must be incurred on behalf of a qualifying individual. A qualifying individual includes a taxpayer's child (e.g., taxpayer's child, stepchild, sibling, stepsibling, or descendant of any of these) under age 13, as well as a dependent or spouse who is physically or mentally incapable of self-care. Since the maximum amount of qualifying expenses is limted to $3,000 for one, or $6,000 for two or more qualifying individuals, the maximum credit would be 35% x $3,000 = $1,050 for one qualifying individual, and 35% x $6,000 = $2,100 for two or more qualifying individuals.