Assume that the case is brought under common law, and that the state in which Geiger Co. is headquartered follows the known user approach for third-party legal liability. I. Should Willis be found...

Introduction
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Audit Case Study
Running Head: AUDIT CASE STUDY
Audit Case Study
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Institution
Introduction
Auditing can be defined as the investigative gathering and analysis of business information in order to ascertain that a Company’s finances are being maintained as per the stipulations of existing principles and legislations (Nguyen & Rajapakse, 2008). Auditing is fundamental in the corporate world and most stakeholders put their faith in audit providers, as they reveal a true and fair view of the state of affairs.
Many businesses enter into agreements with external auditors to review their financial statements for the benefit of interested parties. These may include the management who usually are the main Client, shareholders, investors and lenders. The guidelines, authority and responsibilities of the auditors are mostly stipulated in a contract that is adjusted to meet the needs of those who require the audited financial reports. For instance, the management may want to know whether the financial statements are compatible with what is on the ground.
Thus, the duty of due diligence goes without say as their recommendation will play a huge role in influencing the decision made by all these stakeholders. Failure to comply with the stipulated guidelines will result to a lawsuit for seeking damages. Among the general guidelines that are adhered to by auditors, include professional qualification to the desired service. Due care must be practised in all acts, planning and supervision of the audited event and obtaining relevant and sufficient data to make desired conclusions.
One of the most prominent suit in breach of due diligence on the part of the Auditor is ordinary negligence (“Overview of Auditors Legal Liability,” n.d). Under Common Law, which are laws built upon the decisions made by judges over time, this falls on the Law of Tort. A breach of due diligence implies that the Auditor was negligent and did not maintain the professional standards required of him.
Part A: In relation to Common law
Question One
Common Law dictates that, an Auditor or an Accountant may be legally liable when found to have committed fraud or negligence in his work. A loss due to negligence is created when the auditor does not follow the code of professional conduct demanded of him or her. There exist many forms of negligence. One such negligence is not abiding by the Generally Accepted Accounting Principles or the GAAP code. An auditor may be deemed liable if he or she does not make any disclosure to his client regarding the true financial performance of the company. Lastly, is when the auditor does not amend the errors and misstatements that had previously been discovered (“Accountants Liability: Liability under Common Law,” n.d).
Still under the common law, the parties aggrieved are therefore required to provide proof in a court of law that they were privy to the testament that was agreed. The general norm, according to law of Contracts, is that the clients are privy to the agreement made. However, most of the third parties are foreseen to have privy in most states under law of Tort. Nevertheless, for those third parties whose cases resemble the precedents set by the “Ultramares Case”, lack privy in all states (“Accountants Liability: Liability under Common Law,” n.d).
Under the common law the Geiger Company, which is SEC registered, has little burden when it takes the matter to court. This means all they have to prove is that James Willis and Company was careless and did not strictly follow the set guidelines. If the guidelines were not expressly set, then they should follow those that are legally predetermined. Furthermore, if an agreement was not in existence, then Common laws principles should be applied in which due care is a prerequisite. The responsibility to prove that they were privy to the contract...