Your audit firm, PNG & Associates, has been the auditor of Ride Ltd (Ride), a large motorcycle manufacturer, for the past five years. Ride is PNG & Associates' largest client, and senior partners at PNG & Associates have a good working relationship with the directors and senior management of Ride. Ride has been a leading motorcycle manufacturer for severalyears. In the past, audits of Ride have run smoothly and its auditor's reports have always been unmodified, stating that in the auditor's opinion the financial report gives a true and fair view. The company has a 30 June year end. Four months after PNG & Associates issued an unmodified opinion on the financial reports of Ride for the year ended 30 June 2019, the Chair of Ride announced that over the past two years the company had recognised fictitious revenue of $20 million and capitalised development expenditure in excess of $25 million that should have been expensed. These irregularities, which resulted from poor internal controls, resulted in an overall loss for the financial year of 2019 equal to $30 million. Ride is suing PNG & Associates for negligence.

Required

(a)Explain whether PNG & Associates is liable to Ride.

(b)Discuss whether PNG & Associates can reduce its liability by claiming contributory negligence by Ride.