Difference between Negligence and Fraud

The different between negligence and fraud is intention. The critical issue in this case study is the responsibility of auditor. Should Ernst & Ernst be civilly liable for defrauded investors of First Securities Company of Chicago under Securities Exchange Act of 1934 under Rule 10b-5. According to Securities Exchange Act of 1934 under Rule 10b-5, plaintiff which was the defrauded investor Hochfelder needed to prove that Ernst & Ernst intentionally manipulate the escrows investors. Ernst & Ernst had audited First Securities Company of Chicago for two decades, Ernst & Ernst should have noticed Nay's "mail rule" policy could lead to potential internal control weakness and misleading financial statement. Defrauded investors were not properly informed or obtained information about the securities they invested in "escrow syndicate" account which Nay personally dealt with. Since Nay was the president of First Securities Company of Chicago and he only dealt with his closest friends whom trusted Nay fully. So he was intentionally made the fraud. 1. Under present technical standards, would auditors be required to disclose a company policy similar to Nay’s mail rule that they discover during an audit? Explain assuming such disclosure had been required at the time this case took place, would that disclosure have resulted in the mail rule being discountinued? * Under present technical standards, auditors are required to disclose company policy similar to Nay’s mail rule, and its import for auditor to be aware and further investigate unreasonable for doubtful company policy if it leads to internal control weakness or possibly fraud scheme. They are also required to report their assessment of internal controls and their opinion on management’s assessment of internal control over financial reporting. If such disclosure had been required at the time this case took place, I believe the mail rule could be