An accounting firm negligently prepares an audit of a company. The audit is intended to help the shareholders in the work of supervising management. Some investors review the audit and, in reliance on the audit, purchase shares in the company. If the investors lose a substantial amount of money and they sue the accounting firm, the firm would be liable for

Question

Quizplus · Accepted Answer

The accounting firm would be liable for negligent misrepresentation because it has a duty of care to the investors to prepare an accurate audit report, and the investors relied on the report to their detriment. The firm did not necessarily owe a fiduciary duty to the investors and there may not have been a contractual relationship between them. Libel is not applicable in this case.

An Accounting Firm Negligently Prepares an Audit of a Company