Final answer:
To establish liability against Big Four Accounting for a negligent audit, Mainline Bank must prove the elements of duty, breach, causation, and damage. Duty is related to the accountant's obligation to adhere to professional standards, while breach involves not meeting these standards. Causation and damage connect the breach to the bank's losses and demonstrate a quantifiable harm.
Step-by-step explanation:
To hold Big Four Accounting liable for the negligent preparation of its audit for Mainline Bank, several elements must be established in a court of law. Based on the principles of negligence in corporate law, there are generally four key elements that must be proved:
- Duty: The plaintiff must show that the accounting firm owed them a legal duty of care. This is often established through the engagement contract where the accounting firm agrees to perform the audit to certain professional standards.
- Breach: It must be demonstrated that the accounting firm breached this duty by failing to adhere to the applicable standard of care that a reasonably competent auditor would exhibit under similar circumstances.
- Causation: There must be a link between the breach of duty and the harm suffered by the bank. This means showing that the negligent audit was the actual cause of the bank's losses.
- Damage: Finally, the bank must prove that it suffered a quantifiable harm as a result of the accounting firm's breach of duty.
In the case of Mainline Bank and Big Four Accounting, these elements together form the framework for establishing the accounting firm's liability. If Mainline Bank can successfully establish these elements, it could potentially win its claim against Big Four Accounting.