[superdope]

I got confused about it.

In Becker, under Section 11 liability of The 1933 Act, there is a example says that if an CPA failed to detect material misstatement and issued an unqualified opinion, which was included in the registration statement for a public offering of securities, this CPA could be sued by purchaser of the securities for damages.

But in “CPA legal liability”, Becker used a similar example to demonstrate majority rule, that an CPA negligently misses a material misstatement of fact in the financial reports and signs the registration statement. A purchaser of the security was within a foreseeable class of persons who might rely on the audited financial statements, but the class is not sufficiently limited, so the purchaser cannot recover in negligence from the CPA.

these two parts seem to have contradict rules about privity. PLEASE HELP~~~

[Jimbo Slice]

Superdope; it's great that you're paying attention to details. All you need to know about Section 11 under the '34 Act is that 1) privitity is not required and that 2) All that is needed to sucessfully sue a CPA that materially mistates something on the prospectus is one of three things: 1) shareholder experienced a loss due to misstatement 2) Shareholder acquired the stock and 3) There was a material misstatement on the prospectus. FYI: no realiance on material misstatement is needed. The plaintiff just needs to prove that there was a material misstatement. If you got the “LAM” mneumonic down you should be able to answer 99% of the questions they ask you about Section 11.

FAR - 8/30/11 [60] | 11/23/11 [88]
REG - 10/28/11 [84]
BEC - 1/2/12
AUD - 1/21/12

[Anonymous]

Superdope, you're confusing Common Law negligence with 1933 Act. Suing under common law and the 1933 securities act are different.

For 1933 the burden of proof is on the auditor, all the plaintiff must prove is “SIM”, privity need not be proven.

Suffered financial loss due to

Information included in prospectus being

Materially Misstated

whereas in Common Law – Negligence,

The plaintiff must be in privity (stated/intended user) or be a known and foreseen user (ForeseeABLE does not count)

and the plaintiff must prove “MILE-NEG”

Material Mistatement

Information in F/S cause

Loss (financial)

Error – NEG

Non Disclosure, Errors in I/C not corrected and not disclosed, GAAS/GAAP not followed.

Hope that helps!

Also, this is all from my notes, don't worry, I'm going to fail this too, yayyy!

[superdope]

pretty clear answers, thanks, jimbo and asitl

[See Pee A]

@superdope: I took REG recently and had quite a few questions on this law stuff and CPA liability, so don't skim over it! What helped me work through the problems was to remember what IS required to prove someone guilty under the different laws. In Becker, for S11 apply L(oss)A(cquired security)M(aterial misstatement). Nothing else is required. Nothing! Also on that same page and in the next two or three pages in the book, look at the requirements for (ordinary) negligence, actual fraud, and constructive fraud/gross negligence. Ordinary negligence (duty of care, breached it, causation, and damages), actual fraud–M(aterial misstatement)A(ctual reliance)I(nduce plaintiff)D(amages)S(cienter). Constructive fraud/gross negligence–MAIDS…without S. No Scienter. Instead, it's reckless disregard.

What helped me was to approach each question, which is technically is always asking what is(not) included in each. For fraud, think Andersen. Did only people in privity try to sue?

Ordinary negligence – best defense: due diligence… you get the picture.

Work through the MCQ's and jot down notes and you'll start picking up on the patterns rather quickly. Good luck!

BEC 86 (08/30/11)
FAR 84 (10/13/11)
REG 88 (11/08/11)
AUD 86 (11/29/11)

Exam prep - Becker self-study

[Author]

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