Question: Giant Stores Corporation Giant hired Touche Ross Co Touche

Giant Stores Corporation (Giant) hired Touche Ross & Co. (Touche), a national CPA firm, to conduct audits of the company’s financial statements for two years. Touche gave an unqualified opinion for both years. Touche was unaware of any specific use of the audited statements by Giant. After receiving copies of these audited financial statements from Giant, Harry and Barry Rosenblum (Rosenblums) sold their retail catalog showroom business to Giant in exchange for 80,000 shares of Giant stock.
One year later, a major fraud was uncovered at Giant that caused its bankruptcy. Because of the bankruptcy, the stock that the Rosenblums received became worthless. In conducting Giant’s audits, Touche had failed to uncover that Giant did not own certain assets that appeared on its financial statements and that Giant had omitted substantial amounts of accounts payable from its records. The Rosenblums sued Touche for accounting malpractice. Is Touche liable for accounting malpractice under any of the three negligence theories discussed in this chapter? H. Rosenblum, Inc. v. Adler, 461 A. 2d 138, 1983 N. J. Lexis 2717 (Supreme Court of New Jersey)

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