Part Inc. (PI) sells electronic components to small and large retailers. PI sought a loan from the General Bank (GB). GB had previously extended $40,000 credit to PI but refused to lend any additional money without obtaining copies of PI's audited financial statements.

PI contacted the CPA firm of Albert & Einstein to perform the audit. In arranging for the audit, PI clearly indicated that its purpose was to satisfy the Bank as to the corporation's sound financial condition and to obtain an additional loan of $35,000. Albert & Einstein accepted the engagement, performed the audit in a negligent manner, and rendered an unqualified opinion. If the audit would have been conducted according to Canadian Auditing Standards the financial statements would have been found to contain a material misstatement and be misleading.

PI submitted the audited financial statements to GB and obtained an additional loan of $10,000. GB refused to lend more than that amount. As a result, PI took the audited financial statements to the Western Bank who agreed to loan the company $25,000.

PI is now in bankruptcy, and GB seeks to collect from Albert & Einstein the $50,000 it loaned to PI The Western Bank is also seeking to collect from Albert & Einstein the $25,000 it loaned to PI.

Required:

Will GB succeed in a law suit against Albert & Einstein for the $50,000? If so, what must they prove? Fully explain your answer. (6 marks)