Auditors May Be Held Liable to Both Their Clients and Third

question 63

Essay

Auditors may be held liable to both their clients and third parties under common law.
a.What must a client prove to recover its losses from a client under common law?
b.What must an ordinary third party prove to recover losses from an auditor under
common law?
c.How does an auditor's ethical obligations and liability under common law intersect?

---

Definitions:

Inventories

Assets held for sale in the ordinary course of business, or in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net Realizable Value

Net realizable value is the estimated selling price of goods minus the costs of their completion and disposal, used to assess inventory valuation.

Lower of Cost

An accounting principle requiring that inventory is recorded at the lower of its original cost or current market value.

Long-Term Debt

Borrowings and financial obligations that are due after a period greater than one year, used as a source of long-term financing.