In 2009, Magic Circle Corporation was experiencing financial hardships and hired Simon Wilson and Gary Morgan to lead the business back to stability.

During this turnaround time, Magic Circle had been contracted to Crowe Horwath, LLP, to audit its books. Wilson and Morgan provided inaccurate financial information to Crowe during their tenure at Magic Circle.

Although Morgan departed Magic Circle in 2011, Crowe did not discover the financial discrepancy until 2013 when Crowe’s audit of Magic Circle’s 2012 financial records found a $14 million loss for the firm. A second auditing firm was hired, which confirmed that Morgan and Wilson had not provided accurate financial documents and that Crowe had failed to find the problem until 2013.

Due to the aforementioned issues, the company could not sustain itself and was sold at a loss.

Magic Circle and three shareholders filed suit against Morgan, Wilson, and Crowe. The suit against Crowe asserted accountant malpractice, arguing that Crowe failed to exercise duty of care.

What are the elements of accountant liability?

Do you think Crowe should be held liable? What kind of evidence would condemn Crowe? What kind of evidence would exculpate Crowe?