Jay and Co., CPAs, audited the financial statements of Maco Corp. Jay intentionally gave an unqualified opinion on the financial statements even though material misstatements were discovered as a result of the audit. The financial statements and Jay's unqualified opinion were included in a 10-K (annual report filed with the SEC)for the company. Which of the following statements is correct regarding Jay's liability to a purchaser of the offering under Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934?

Question

Quizplus · Accepted Answer

Under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, auditors can be held liable for material misstatements or omissions in financial statements contained in a public offering. The auditor's liability extends to any person who relied on the misstatement and suffered a loss as a result. Therefore, Jay will be liable if the purchaser of the offering relied on Jay's unqualified opinion on the financial statements. Negligence in conducting the audit (choice B) is not relevant to the liability under Section 10(b) and Rule 10b-5. The amount of the purchaser's loss (choice C) is also not a relevant factor. Lastly, if the misstatement resulted from an omission of a material fact by Jay (choice D), Jay will still be liable.