Diana,a Certified Public Accountant,was hired to audit the financial statements of a large Internet retailer that was planning a new issuance of stock.The client had made several public offerings of stock in recent years and was required to meet the reporting requirements of the Securities Exchange Act of 1934.In performing her audit,Diana discovered that large portions of accounts receivable resulted from fictitious sales.The client told Diana that the company would go bankrupt and that she would then be unable to collect her fee if the fictitious accounts receivable were eliminated or were mentioned in the auditor's report.Diana did not adjust or mention the problems with the accounts receivable.The audited financial statements were included in the registration statement for the new public offering and in the reports filed under the Securities Act of 1934.Diana faces statutory liability under:

Question

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Diana faces liability under both Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. Section 11 imposes strict liability on any person who materially misrepresents information in a registration statement, such as the audited financial statements included in the registration statement for the new public offering. Section 10(b) prohibits any person from using manipulative or deceptive practices in connection with the purchase or sale of any security, which Diana would have done by not disclosing the fictitious accounts receivable in the audit report.

Diana,a Certified Public Accountant,was Hired to Audit the Financial Statements