Legal Liability for Auditors Under the Securities Act of 1934

question 62

Multiple Choice

Legal liability for auditors under the Securities Act of 1934 comes from the requirement that prohibits any fraudulent activities involving the sale or purchase of a security.This requirement has been interpreted to apply to auditors if

• A)they were negligent in performing the audit
• B)the audited financial statements contained a material misrepresentation or omission
• C)they were diligent in performing the audit
• D)they intentionally or recklessly misrepresent information given to third parties

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Definitions:

Moral Hazard

A situation where one party is more likely to take risks because another party bears the consequences of those risks.

Specific Purpose

A clearly defined and precise goal or objective that a project, action, or entity aims to achieve.

Market Signaling

Actions taken by buyers and sellers to communicate quality in a world of uncertainty.

Education

The systematic process of facilitating learning, or the acquisition of knowledge, skills, values, and habits.