Question

Under the liability provisions of section 11 of the Securities Act of 1933, auditors may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the registration statement. Under section 11, auditors usually will not be liable to the purchaser a) If auditors can show contributory negligence on the part of the purchaser. b) If auditors can demonstrate due diligence. c) Unless the purchaser can prove privity with auditors. d) Unless the purchaser can prove scienter on the part of auditors.

Answer 1

Answer:

b) If auditors can demonstrate due diligence.

Explanation:

Under the liability provisions of section 11 of the Securities Act of 1933, auditors may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the registration statement. Under section 11, auditors usually will not be liable to the purchaser if auditors can demonstrate due diligence.

Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k (1988), provides investors with the ability to hold issuers and others liable for any damage incurred and caused by false statements of fact or even material omissions of fact within registration statements as at when effective.

The Securities Act of 1933 was used to regulate the stock market as the first federal legislation. With this act, power was given to the federal government and taken away from the state governments.

Hence, the Securities Act of 1933 is used to protect investors from frauds by creating a set of standard rules.

In conclusion, auditors usually will not be liable to the purchaser if auditors can demonstrate due diligence in their services and responsibilities.