Smith and Company, CPAs, performed the audit work for a large corporation in connection with their registration statement.

Smith and Company, CPAs, performed the audit work for a large corporation in connection with their registration statement. Smith and Company performed the work according to all appropriate professional standards, but the corporation had cleverly made the inventory look much greater than it actually was. Because the company did not have as much inventory as was indicated on the financial statements, the company was worth much less than it appeared to be. Smith and Company has been named in a lawsuit under Section 11 of the Securities Act of 1933. Even though Smith and Company properly performed the audit, and the fraud on the part of the corporation was such that it would not be uncovered by an audit, Smith and Company cannot prove any of this in court because all of its audit working papers and computer documentation was accidentally shredded. Discuss Smith and Company's legal/liability situation.