Assume that in a particular audit the CPAs were negligent but not grossly negligent. Indicate whether they would be “liable” or “not liable” for the following losses proximately caused by their negligence and determine that liability under the various theories discussed and followed by different states:
a. Loss sustained by client; suit brought under common law.
b. Loss sustained by trade creditor, not in privity of contract; suit brought in a state court that adheres to the Ultramares v. Touche Co. precedent.
c. Loss sustained by a bank known to the auditors to be relying on the financial statements for a loan; suit brought in a state court that adheres to the Credit Alliance v. Arthur Andersen precedent.
d. Losses to stockholders purchasing shares at a public offering; suit brought under the Securities Act of 1933.
e. Loss sustained by a bank named as a third-party beneficiary in the engagement letter; suit brought under common law.
f. Loss sustained by a lender not in privity of contract; suit brought in a state court that adheres to the Rosenblum v. Adler precedent.
g. Losses sustained by stockholders; suit brought under Sections 18(a) and 10(b) of the Securities Exchange Act of 1934.