3. No. The SEC was incorrect. Arthur Young and Company was required to follow GAAS. Having
done so, it met its standard of care. In addition, while auditors are required to look for fraud and illegal
4. No. The accountants were incorrect. Third parties damaged by negligence or fraud of an
accountant can bring suit against that accountant. Whether the third party will succeed in that suit will
depend upon the facts and the law of the state. Protection from negligently prepared financial
5. No. The measure of damages in a suit against architects for failing to fulfill the terms of a contract
does not depend on a drop in the market value of the structure. The appropriate measure of damages,
6. Probably not. The court may use two standards that might hold the physician in this case liable.
The court might judge performance by determining how the same procedure is performed at another
hospital located in a similar locality. Under the similar locality rule, rural hospitals are compared to
other rural hospitals, urban hospitals to urban hospitals, and suburban hospitals to suburban hospitals.
However, courts today often use a national standard. Under the national standard, a nurse in