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 are not liable to the purchaser
A) If they can show contributory negligence on the part of the purchaser.
B) If they can demonstrate due diligence.
C) Unless the purchaser can prove privity with the auditors.
D) Unless the purchaser can prove scienter on the part of the auditors.

Question

Quizplus · Accepted Answer

Auditors may not be held liable under section 11 if they can demonstrate due diligence, which means they made a good faith effort to review and verify the financial statements and had a reasonable basis for their opinion. Option A is incorrect because contributory negligence by the purchaser would not absolve the auditors of liability. Option C is incorrect because privity is not required under section 11; any purchaser who relied on the registration statement and suffered a loss may sue the auditors. Option D is also incorrect because scienter, or knowledge of the misstatement, is not required under section 11; negligence or recklessness is sufficient.

Under the Liability Provisions of Section 11 of the Securities