Auditor’s Legal Liability to Third Parties

change magnitude monetary obligation of other professionals to nonprofits users of their services II. neglect of fairness of Imposing the burden of economical loss on Innocent fiscal farmingment users Ill. Assumption that expanded liability will take a crap listeners to improve their auditing procedures v. Auditors form the ability to obtain liability amends v. Increased audit and amends allowance costs arsehole be passed on to the client 4. Reasonably foreseeable triplet parties (used by MS, NJ, WI) a. Ore expansive definition regarding the lawful stand of who can sue the attendee I. Allows broader class of (stockholders or stockbrokers, for example) might differentiate regarding accuracy of financial reports Reflection composition WI, NJ and MS grow a very expansive definition of who ought to be able to sacrifice legal standing to sue auditors for audit reports of financial statements if the auditor appears to have been negligent or attached cunning, there m ustiness be any(prenominal) balance struck to protect both(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 oversight or fraud, maculation still allowing them to obtain liability insurance to limit their exposure to legal claims. Chapter 20, paradox 20-27 a. What elements must be established by Musk to support a cause of save based on negligence?Since state law applicable to this action follows the chromatic decision, which qualifys the standard for auditor negligent liability by a third troupe according to antecedence, in which a arrest or specific agreement exists amidst 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), it must prove the following 1 . Apple made a material, factual inconclusivehood or omission 2. Musk relied on the financial statements . Musk suffered damages as a result of reliance on the financial statements 4. Sciences (Apple acted with objective to deceive, defraud, or with knowledge of a false representation) c.Is Apples assertion regarding lack of priority mitigate with regard to Musks causes of action for negligence or fraud? Regarding negligence, Apples assertion regarding Musks lack of priority is correct according to the standard set by the ultramarine blue decision. There was no contract between Apple and Musk. However, regarding the fraud charge, the priority requirement does non apply. If the complainant an show gross negligence or fraud, the auditor can still be held liable for damages.As stated in the problem, Apple was aware that Astor was selling inventory at prices substantially less than cost, so it shou ld have kn bear that the inventory valuation provided by Astor should not have been trusted, and should have conducted its own valuation of inventory. While the application of the Ultramarine decision will make it serious to hold Apple liable for negligence under common 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.