Elliot Corp.is interested in purchasing Roger Corp.Prior to the purchase Elliot hired Adam & Co.to audit the financial statements of Roger.During the audit,Adam & Co.failed to discover a fraud that resulted in material misstatements in Roger's financial statements.After the acquisition,the fraud was discovered and Elliot Corp.suffered substantial losses.If Elliot sues Adam & Co.,Elliot must prove that Adam & Co
A) acted recklessly or with lack of reasonable grounds for belief.
B) knew of the instances of fraud.
C) failed to exercise the appropriate level of professional care.
D) demonstrated gross negligence.

Question

Quizplus · Accepted Answer

In order for Elliot to successfully sue Adam & Co., they must prove that the auditors failed to exercise the appropriate level of professional care. This means that Adam & Co. did not do their job properly in conducting the audit, which led to the failure to discover the fraud in Roger Corp.'s financial statements. While options A, B, and D relate to different levels of negligence, they are not specific enough to cover the specific type of negligence that Elliot must prove in order to win the lawsuit.