If information in a registration statement is not true, professionals associated with the public offering may be sued by those who suffer a loss. However, they may offer as a defense that they did not know that the information was untrue and they had reasonable grounds for their belief.
Go to the AICPA Web site, to AU 634 Letters for Underwriters and Certain Other Requesting Parties. Note that in paragraph 1 (AU 634.01) the standard states that it gives guidance to accountants who are providing reports to underwriters and others who have a “due diligence defense” under Section 11 of the Securities Act of 1933.
Next go to the SEC Web site and click through the following menu choices: About the SEC, What We Do, The Laws that Govern the Securities Industry. Then click on the link to the Securities Act of 1933. (If you want to go directly to the law, go to: www.sec.gov/about/laws/sa33.pdf)
(a) Find and read Section 11(b) 3: What is the language in this section of the law that indicates that a valid defense is that a person had reason to believe that the information in the registration statement is true?
(b) Find and read Section 11 (c): What is the standard that is appropriate to be used for “reasonable investigation and reasonable ground for belief?”