Ward & east, CPAS, were the auditors of southern development, inc., and the real estate company that owed several shopping centers. It was SOUTHERN’S practice to let each shopping center manager negotiate that center’s leases; they thought that such an arrangement resulted in much better leases because a local person did the negotiating. Two of the center managers were killed in a plane accident returning home from a company meeting at the head office in phoenix.

In both cases, the new managers appointed to take their places discovered kickback schemes in operation; the managers had negotiated lower rents than normal in return for kickbacks from the tenants. Southern brought in a new CPA firm, jasper & co., to investigate the extent of the fraud at those two locations and the possibility of similar frauds at other centers.

Jasper & co. completed their investigation and found that four locations were involved quite independently of each other and that the total loss 5 years was more than $1 million. Southern sued ward& east for negligence for $1milion plus interest. What defense will ward & east use? What will they have to prove?