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 provide Ritz with proper bases upon which Ritz would most likely prevail?

Question

Quizplus · Accepted Answer

Ritz is unable to prove that Fein intentionally deceived it or showed a reckless disregard for the truth. Therefore, fraud and gross negligence are not appropriate causes of action. However, Ritz can claim that Fein breached its duty by failing to exercise the knowledge, skill, and judgment commonly possessed by CPAs in the locality, which is negligence. Additionally, Ritz can assert a claim for breach of contract because Fein had a contractual obligation to perform an audit in accordance with generally accepted auditing standards, and the audit report provided to Ritz contained errors. Therefore, option A is the most appropriate choice.

Ritz Corporation Wished to Acquire the Stock of Stale,Inc