Question

Please provide answers next to the questions provided. Most questions can be answered with 3 or less sentences, but please do not exceed 5 sentences.

What is the difference between the Securities Act of 1933 and 1934? Who can sue the auditors under each of these acts?

What is the prudent person concept and how can it be used as a defense if an auditor is being sued?

Answer 1

· The Securities Act 1933 mainly deals with Original issue of securities.

· The Securities Act 1934 mainly deals with Secondary Trading.

· Under Securities Act 1933, no one can sue the auditors if financial statements are misstated.

· Under Securities Act 1934, investors can sue the auditors if financial statements are misstated.

Prudence Person Concept:

· The prudent person concept states that a person is responsible for conducting a job in good faith and with integrity, but is not infallible. Therefore, the auditor is expected to conduct an audit using due care, but does not claim to be a guarantor or insurer of financial statements. Therefore if an auditor done his job in good faith cannot be sued.