Directions: Choose the correct option for the given question.
Match List-I with List-II
List-I (Liability of Auditor) List-II (Example)
(a) Liability for negligence 1. Breach of trust or duty
(b) Liability for misfeasance 2. Untrue statement in the prospectus
(c) Criminal liability 3. Not liable for untrue statement in prospectus
(d) Liability to third party 4. Dividends paid out of capital
Which of the following is the correct match?
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(a) 4 (b) 3 (c) 2 (d) 1
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(a) 2 (b) 1 (c) 4 (d) 3
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(a) 4 (b) 1 (c) 2 (d) 3
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(a) 2 (b) 3 (c) 4 (d) 1
C
Correct answer
Explanation
Liability for negligence (a) occurs when auditors fail to exercise due care, such as allowing dividends paid out of capital (4). Misfeasance (b) means breach of trust or duty (1). Criminal liability (c) arises for untrue statements in prospectus (2) under Companies Act provisions. Liability to third parties (d) is generally excluded - auditors are not liable to third parties for untrue statements in prospectus (3), as this is governed by the principle of privity of contract.