A local court is in the process of ruling on whether the public accounting firm of James Willis should be required to pay all part of $16 million in damages relating to Geiger Co. for failing to detect a scheme to defraud the company, a former audit client.

Geiger Co. an SEC registrant. charges that Willis was negligent in failing to discover fraud committed by the company's controller and wants Willis to foot the bill for all $16 million In claims by and against the company. The company claims that If it had known about the fraud it could have stopped it and recovered financially. The bank Involved claims that it granted the loan based on misstated financial statements. The shareholders involved claim that they purchased the stock on the American Stock Exchange at an inflated price due to the misstated financial statements. They acknowledged that while stock had been outstanding and traded for many years (10) prior to the fraud, they made their investment decisions relying upon the misstated financial statements.

Assume that Willis performed that audit with ordinary negligence, and this ordinary negligence Is the reason that the defalcation was not discovered and recovered. Reply from the perspective that the only issues involved here are whether the plaintiffs involved may recover from a CPA that has performed the engagement with this degree of negligence-assume the situation described above and that other elements of proof(e.g. Loss, proximate cause) are not at issue.

Assume that the case is brought under common law and that the state in which Geiger co is headquartered follows the Restatement of Torts Approach for third party legal liability. Answer the following questions: Should Willis be found liable if sued by shareholders who invested in the stock of the company. Assume these investors invested relying upon the misstated financial statement and as a result thereof lost $3,000,000?

a. More information is needed to determine the liability

b. Yes c. No