Consider the following situation. A group of investors who specialize in investing in high-technology IPOs files suit against the auditors of one of those firms when the stock loses 50 percent of its value shortly after issue. Analysts attribute the steep decline to the firm losing a major contract. The investors, however, are basing their claim on the revelation that much of the firm's inventory was carried at a value well above its fair market value.

In fact, the auditors had been negligent in their audit of management's estimate of the market value of inventory. The audit firm failed to hire appropriate specialists to price the goods, instead relying on in-house expertise developed through the firm's extensive experience auditing high-technology firms.

If you were the senior partner of the audit firm for this high-technology IPO, how would you defend against the lawsuit? Specifically, discuss the merits of the defense strategies available to your firm that are noted in the text. Suggest a new defense.