An accounting firm made serious errors in providing audited financial statement to ABC Limited. These statements are used by management, shareholders, and potential shareholders.

Question

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Potential shareholders who relied on these statements may succeed in suing the accounting firm in negligence if the accounting firm has not acted according to the standard set for accounting firms. Negligence is an act or omission in violation of duty, which can cause harm to another party. In this case, the accounting firm has a duty to prepare accurate audited financial statements, and if they fail to do so and provide erroneous statements, they can be sued for negligence. The standard set for accounting firms is the generally accepted auditing standards (GAAS) which must be followed by accounting firms.

An Accounting Firm Made Serious Errors in Providing Audited Financial