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Question
Ritz Co. wished to acquire Smart Inc. In conjunction with its plan of acquisition, Ritz hired Felix, a CPA, to audit the financial statements of Smart. Based on the audited financial statements and Felix's unqualified opinion, Ritz acquired Smart. Within six months, it was discovered that the inventory of Smart had been overstated by $500,000. Ritz commenced an action against Felix. Ritz believes that Felix failed to exercise the knowledge, skill, and judgment commonly possessed by CPAs in the locality, but is unable to prove that Felix either intentionally deceived it or showed a reckless disregard for the truth. Ritz is also unable to prove that Felix had any knowledge that the inventory was overstated. Which of the following would provide Ritz with a proper basis for prevailing in a lawsuit against Felix?
A. Negligence and breach of contract
B. Gross negligence and fraud
C. Negligence and fraud
D. Gross negligence and breach of contract
Answer
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