1. What would the bank have to do prove to successfully bring a law suit against Kay & Lee for ordinary negligence? Use legal principles to support your answer.
2. Changing the facts of the case, assume the client hired Kay & Lee to audit the financial statements, explaining that the purpose of the audit is to negotiate a loan. The name of the bank is unknown to the auditors. Under which legal principle could the auditors be held legally liable for the ordinary negligence? Which case(s) in the book support your opinion?
3. From an ethical perspective why is it important for an auditor to properly audit inventory and accounts receivable when it knows a bank may rely on the audited financial statements?