Cheddar Ltd was a large cheese products manufacturer that was considered a prime takeover target. Johnson and Associates completed the annual audit for 20X8 and issued an unmodified auditors report. Shortly afterwards Cheddar Ltd was taken over by Tasty Ltd, which used the audited financial report as the basis of takeover.

After the takeover was completed Tasty Ltd found that the inventory of Cheddar was materially overstated. Johnson & Associates has relied on management representations about the quality of the cheese products. In fact, 20 per cent of cheese were adversely affected by fungus that rendered them worthless. In addition, Johnson and Associates only attended the Melbourne stocktake, as it accounted 65 percent of the stock. No work was completed on interstate locations. However, subsequent investigation showed significant shortage in these locations.

Required:

Explain whether Johnson & Associates is liable to Tasty Ltd for damages under the tort of negligence