1. The court found that the addressing of audit reports to the shareholders, while not conclusive, is a strong indication that P&T intended the shareholders to rely upon them. Do you agree, in general, that addressing the reports to a class of owners should be sufficient to hold an auditor legally liable to any shareholder who can demonstrate a lack of reasonable care? What about in applying the facts of this case? Would your conclusion change? Explain.

2. Judge Silverstein relied on the Restatement (Second) of the Law of Torts for his ruling. Assume he had relied on the “near-privity relationship” ruling in Credit Alliance, and evaluate the legal liability of the auditors using that standard.

3. The court decision refers to the importance of the auditors’ knowing about third-party usage of the audited financial statements. What role does such knowledge play in enabling auditors to meet their professional and ethical responsibilities?

Answer rating: 100% (QA)

1 I agree with the court that addressing the reports to a class of owners should be sufficient to hold an auditor legally liable to any shareholder wh... View the full answer