Ritz Corporation wished to acquire the stock of Stale, Inc. In conjunction with its plan of acquisition, Ritz hired Fein, CPA, to audit the financial statements of Stale. Based on the audited financial statements and Fein's unqualified opinion, Ritz acquired Stale. Within 6 months, it was discovered that the inventory of Stale had been overstated by $500,000. Ritz commenced an action against Fein. Ritz believes that Fein failed to exercise the knowledge, skill, and judgment commonly possessed by CPAs in the locality, but is not able to prove that Fein either intentionally deceived it or showed a reckless disregard for the truth. Ritz also is unable to prove that Fein had any knowledge that the inventory was overstated. Which of the following two causes of action would Ritz need to prove to prevail in a lawsuit?

Question

Quizplus · Accepted Answer

Ritz would need to prove negligence, as it believes Fein failed to exercise the appropriate level of skill and judgment expected of CPAs, and breach of contract, assuming there was a contractual agreement for the audit that Fein did not fulfill according to the expected standards. There's no indication of intentional deceit (fraud) or a level of carelessness that would constitute gross negligence without further evidence.

Ritz Corporation Wished to Acquire the Stock of Stale, Inc