Question
Castor Inc. is a construction company that went into receivership in June 2020. The company had been audited and received an unmodified audit opinion for
Castor Inc. is a construction company that went into receivership in June 2020. The company had been audited and received an unmodified audit opinion for 2018 and 2019. The receivership was mainly the result of the companys controller having speculated in the commodities markets with company funds. The speculation began as a means of earning investment income with funds not needed for a short time, but escalated to fraudulent behavior when the controller began falsifying records and hiding information. Castor sued the audit firm for its losses. The auditor was also sued by the clients bank for its loss on a loan to Castor, and by a hedge fund (an investment fund) that purchased shares in February 2020, shortly after the audit report was issued. One of Castors competitors, Beaver Ltd., also sued the audit firm for losses suffered when they purchased excess inventory from Castor. The inventorys market value was below the recorded amount on Castors balance sheet at December 31, 2019. Required: Assume that the auditor is found to have been negligent in the conduct of the audit. For each of the parties mentioned above, state whether or not the auditor would owe a duty of care to that party. Briefly explain your answer.
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