Truth Accounting,Inc.has been retained to perform an audit for a client.In doing the Audit,it fails to discover an embezzlement that has gone on for two years by the client's chief financial officer.The reason that Truth Accounting,Inc.failed to discover the embezzlement was because the auditor was in a rush to finish due to being too busy,so she did not conduct a reasonable investigation.Soon after the audit,the embezzlement is discovered,and the client goes bankrupt.If Truth Accounting,Inc.is sued,which of the following theories of liability apply?

Question

Quizplus · Accepted Answer

Negligence applies in this scenario because the auditor failed to exercise reasonable care in conducting the audit, which led to the failure to discover the embezzlement. The Ultramares doctrine and Section 552 of the Restatement (Second) of Torts are both standards for determining when an auditor can be held liable to third parties for negligent misrepresentation, but they do not apply in this situation where the client is the one suing. The foreseeability standard and strict liability are also not applicable in this case.