B is corrent because in this case, it is important first to note that the client is not the firm being audited. In other words, Rhodes Corp., not Harris Corp., is the client. Under common law the accountant can be held liable to the client for negligence, which is the failure to exercise due care. Therefore, Rhodes Corp. must prove at a minimum that Johnson & Co. failed to do that which an ordinary, reasonable, prudent accountant would do under the same or similar circumstances.
A is incorrect because Johnson will be held liable for failure to exercise due care. Thus, Rhodes at a minimum must only prove ordinary negligence and need not prove that Johnson had actual knowledge of the liability.
C is incorrect because Rhodes Corp. must at a minimum only prove that Johnson and Co. failed to exercise due care when performing the audit. Thus, only ordinary negligence not gross negligence must be proved.
D is incorrect because Rhodes must prove only ordinary negligence and not fraud in a common law action. Since Rhodes is Johnson’s client, the account is held liable for negligence, which is the failure to exercise due care.
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