(Solution) - HHH Corporation manufactures automobile engines In 2012 the treasurer at -(2025 Original AI-Free Solution)

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HHH Corporation manufactures automobile engines. In 2012, the treasurer at HHH decided to invest the company's surplus funds in the commodities market. She intended for it to be a short-term investment, as the company had $1 million in extra funds that would not be needed for three months. Unfortunately, the market price of the commodity she purchased declined sharply and in three months the investment was sold for only $500,000. The treasurer prepared documents to make the loss of the investment appear as a sale of excess inventory, so the company showed a lower profit on sales than usual, but no trading loss. The auditor audited the 2012 financial statements and issued an unmodified report, even though the amount in question exceeded the materiality threshold. HHH has always been owned privately. In 2012, all of the shares of the company were purchased by a group of engineers who had retired from the automobile industry. There were no other changes in the shareholders during 2013 or 2014.
Required
Assume that the shareholders of HHH sued the auditors. Explain how the elements of negligence would apply to this case.