West & East, CPAs, were the auditors of Southern Development Ltd, a real estate company that owned several shopping centres. It was Southern's practice to let each shopping centre manager negotiate that centre's leases; they thought that such an arrangement resulted in much better leases because a local person did the negotiating. Two of the centre managers were killed in a chartered plane accident returning home from a company meeting at the head office in Adelaide. In both cases, the new managers appointed to take their places discovered kickback schemes in operation; the managers had negotiated lower rents than normal in return for kickbacks from the tenants. Southern brought in a new accounting firm, North & Co., to investigate the extent of the fraud at those two locations and the possibility of similar frauds at other centres. North & Co. completed their investigation and found that four locations were involved quite independently of each other and that the total loss over five years was more than $1 million. Southern sued West & East for negligence for $1 million plus interest.

REQUIRED

What defence would West & East use? What would they have to prove?