An auditor signed the financial statements of a small business that was up for sale. In them, he confirmed that the amount of an outstanding bank loan was $100,000. In fact the loan was for $150,000. During the auditing process the accountant had asked the business for a letter from the bank, confirming the loan amount. He received the letter, typed on plain paper without letterhead, signed by the bank manager, stating that the loan was $100,000. Someone purchased the business, relying on the financial statements. When the error was discovered, the new owner sued the auditor for professional negligence. The auditor defended by saying he really believed the loan amount to be $100,000, and had checked with the bank. Applying the relevant principles of the tort of negligence, provide an explanation to the following questions: a) Was the fact that the auditor truly believed the loan amount to be $100,000 relevant to the question of negligence? b) What test would be applied to determine if the accountant met the standard of care required? c) Even if the purchaser is successful in establishing that the accountant was careless, will she be successful in her action against him?
An auditor signed the financial statements of a small business that was up for sale. In them, he confirmed that the amount of an outstanding bank loan was $100,000. In fact the loan was for $150,000. During the
a) Was the fact that the auditor truly believed the loan amount to be $100,000 relevant to the question of negligence?
b) What test would be applied to determine if the accountant met the standard of care required?
c) Even if the purchaser is successful in establishing that the accountant was careless, will she be successful in her action against him?
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