Business Its Legal Ethical & Global Environment
10th Edition
ISBN: 9781305224414
Author: JENNINGS
Publisher: Cengage
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An auditor signed the financial statements of a small business that was up for sale. In them, he confirmed that the amount of an outstanding bank loan was $100,000. In fact the loan was for $150,000. During the auditing process the accountant had asked the business for a letter from the bank, confirming the loan amount. He received the letter, typed on plain paper without letterhead, signed by the bank manager, stating that the loan was $100,000. Someone purchased the business, relying on the financial statements. When the error was discovered, the new owner sued the auditor for professional negligence. The auditor defended by saying he really believed the loan amount to be $100,000, and had checked with the bank. Applying the relevant principles of the tort of negligence, provide an explanation to the following questions:
a) Was the fact that the auditor truly believed the loan amount to be $100,000 relevant to the question of negligence?
b) What test would be applied to determine if…
Nino Moscardi, president of Greater Providence Deposit & Trust (GPD&T), received an anonymous note in his mail stating that a bank employee was making bogus loans. Moscardi asked the bank’s internal auditors to investigate the transactions detailed in the note. The investigation led to James Guisti, manager of a North Providence branch office and a trusted 14-year employee who had once worked as one of the bank’s internal auditors. Guisti was charged with embezzling $1.83 million from the bank using 67 phony loans taken out over a three-year period.
Court documents revealed that the bogus loans were 90-day notes requiring no collateral and ranging in amount from $10,000 to $63,500. Guisti originated the loans; when each one matured, he would take out a new loan, or rewrite the old one, to pay the principal and interest due. Some loans had been rewritten five or six times.
The 67 loans were taken out by Guisti in five names, including his wife’s maiden name, his father’s name,…
Advanced Alloys, Inc., issued a check in the amount of $2,500 to Sergeant Steel Corporation. The check was presented for payment fourteen months later to the Chase Manhattan Bank, which made payment on the check and charged Advanced Alloy’s account. Can Advanced Alloys recover the payment made on the check? Why or why not?
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