For each of the following situations, will the plaintiff be successful in their lawsuit against the auditor? Describe why or why not. Justify your answer with details from the scenario.

Trusted Financial is a local bank offering financial services to the community. In an effort to support local businesses, Trusted Financial discovers LXY auditors, a new audit firm that has just been founded by newly designated CPAs, and offers LXY the job as their external auditors. While LXY does not have any background in auditing banks, after some encouragement by Trusted Financial, they decide to accept the engagement. While on the audit engagement, LXY discovers that auditing a financial institution was more complex than expected. Not wanting to let down their new clients, they continue with the audit, searching out help from online sources to increase their knowledge and getting guidance from Trusted Financial’s internal accountants for complex calculations. Shortly after the audit is completed, it is discovered that Trusted Financial had significant misstatements in their valuations due to errors in how the internal accounting department, and subsequently the external auditor, had calculated accruals and the value of various financial instruments. As a result, many accounts had to be written down and large losses were taken, bankrupting the bank. The customers of the bank have decided to sue LXY for damages as many customers lost uninsured deposits. 

Answer rating: 100% (QA)

An auditor or CPA Certified Public Accountant or CA Chartered Accountant is ... View the full answer