Auditor’s Legal Liability to Third Parties

Increased liability of other professionals to nonprofits users of their service II. Lack of fairness of Imposing the burden of economic loss on Innocent financial statement users Ill. Assumption that expanded liability pass on cause visitors to improve their auditing procedures v. Auditors have the ability to obtain liability damages v. Increased audit and insurance premium costs send away be passed on to the client 4. Reasonably foreseeable third parties ( employ by MS, NJ, WI) a. Ore sumptuous comment regarding the legal standing of who can sue the attendant I. Allows broader figure of (stockholders or stockbrokers, for example) might say regarding accuracy of financial reports Reflection epoch WI, NJ and MS have a very expansive definition of who ought to be able to have legal standing to sue auditors for audit reports of financial statements if the auditor appears to have been negligent or committed fraud, thither must(prenominal) be some balance struck to protect some (prenominal) auditors and third parties that may rely on audit reports.The Restatement Standard, as used by most states, appears to strike that balance, holding auditors accountable for potential carelessness or fraud, while gloss over allowing them to obtain liability insurance to localize their exposure to legal claims. Chapter 20, problem 20-27 a. What elements must be established by Musk to support a cause of natural action based on remissness?Since state law applicable to this action follows the Ultramarine decision, which sets the standard for auditor negligent liability by a third party gibe to priority, in which a crush or specific agreement exists surrounded by the two parties, Musk would need to show that a contract existed between apple and Musk to have legal standing to bring a suit against Apple. B. What elements must be established by Musk to support a cause of action based on a Rule lob-5 violation?If Musk has established that it can sue under Section II(b), i t must prove the following 1 . Apple made a material, factual misrepresentation or disregard 2. Musk relied on the financial statements . Musk suffered damages as a result of trustingness on the financial statements 4. Sciences (Apple acted with intent to deceive, defraud, or with knowledge of a sham representation) c.Is Apples assertion regarding lack of priority correct with regard to Musks causes of action for neglect or fraud? Regarding negligence, Apples assertion regarding Musks lack of priority is correct fit in to the standard set by the Ultramarine decision. There was no contract between Apple and Musk. However, regarding the fraud charge, the priority requirement does not apply. If the plaintiff an show crying(a) negligence or fraud, the auditor can still be held liable for damages.As stated in the problem, Apple was aware that Astor was sell inventory at prices substantially less than cost, so it should have cognize that the inventory valuation provided by Astor s hould not have been trusted, and should have conducted its experience valuation of inventory. While the application of the Ultramarine decision will check it difficult to hold Apple liable for negligence under uncouth law, that decision does not hold weight when considering fraud or gross negligence. In that case, Musk may be able to collect damages on the basis of Rule bib-5.