The public accounting firm of Bigge & Brown was expanding very rapidly. Consequently, it hired several junior accountants, including a man named Lee. The partners of the firm eventually became dissatisfied with Lee's work and warned him that they would be forced to discharge him unless his output increased significantly.

At that time, Lee was engaged in audits of several clients. He decided that in order to avoid being fired, he would reduce or omit entirely some of the standard auditing procedures listed in audit programs prepared by the partners. One of the firm's clients, Newell Corporation Ltd, was in serious financial difficulty and had adjusted several of the accounts being examined by Lee to appear financially sound. Lee prepared fictitious working papers in his home at night to support purported completion of auditing procedures assigned to him, although he didn't in fact examine the adjusting entries. The firm rendered an unqualified opinion on Newell's financial statements, which were grossly misstated. Several creditors, relying on the audited financial statements, subsequently extended large sums of money to Newell Corporation Ltd. The company failed and the liquidator sued Bigge & Brown and the directors. Creditors in total lost approximately $400 000, while shareholders lost $1.2 million originally paid for shares in the company.

REQUIRED

Analyse Bigge & Brown's probable legal position by identifying the potential liability of the auditors to each party involved, the extent of possible damages and the usefulness, if any, of a contributory negligence defence.