Question

The board of directors of X Corporation would like to immunize themselves of any liability arising from any material misrepresentations and omissions during the preparation of the IPO prospectus. They may avoid this liability by establishing that they undertook a reasonable investigation that would lead a reasonable person to believe the statements were accurate. This is known as a:

Answer 1

Answer:

Due diligence defense

Explanation:

Due diligence defense is often used by companies who received accusation from Security Exchange comission for falsifying their financial statement.\

This defense is applicable if X coproration hired a third party to investigate their financial statement such as famous public auditors (KPMG, Deloitte, etc)

If they can proof that they have been properly investigated, the accusation that given by the Security Exchange Comission technically can be redirected to these external investigators.