Perform audit on the store financial statements

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Reference no: EM132185132

Sheldon, a Certified Public Accountant, was hired by Jones Hardware Store to perform an audit on the store’s financial statements. In their agreement was a clause stating that the audited financial statements would be used “to obtain further inventory financing from Second Bank or another local bank.” Sheldon completed the audit and issued an unqualified opinion. Eventually Jones Hardware obtained the financing from First National Bank – which is another local bank. Unfortunately, Sheldon had been negligent in conducting the audit, and the inventory had been greatly overstated. As a result, there was inadequate collateral for First’s loan, and when Jones Hardware went bankrupt a few months later, First National Bank suffered a loss. Under which rule or rules for accountant’s liability to third parties could First National Bank recover from Sheldon? (Discuss all rules that may apply)

Reference no: EM132185132

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