Dixon was an investor who chose to invest $1.2 million in National Business Systems when the share price was $12.89 per share. These shares went up in price somewhat but, before he could sell, the securities commission suspended trading. When trading resumed, the shares sold at about $3 each. Dixon had invested on the strength of financial statements, including on marked " Consolidates Statements of Income and Retained Earnings (Audited)", which had been audited by Deacon Morgan McEwan Easson. In fact, those statements were based on fraudulent information supplied by the management of National Business Systems to indicate annual profits of $14 million when the company had in fact lost $33 million. There is no question that the accounting firms involved in the audit were negligent for not detecting the inaccuracy. Dixon sued the accounting firm for negligence. Nothing on the document indicates who the auditors were, and the statements had been prepared without the auditors' knowing that they would be used by an investor such as Dixon.

QUESTIONS

1.Did the auditors owe a duty to Dixon to be careful?

2.If the auditors had known that the statements were being prepared to attract investors, would this affect your answer?

3.Is this a just way of treating liability for professionals, or should they only be liable to the clients they have contracted with?