Reference no: EM13260088

The accounting firm of T, W & S was engaged to perform an audit of Progate Manufacturing Company. During the course of the audit, T, W & S discovered that the company had overvalued its inventory by carrying the inventory on its books at the previous year's prices, which were significantly higher than current prices. When T, W & S approached Progate's president, Lehman, about the improper valuation of inventory, Lehman became enraged and told T, W & S that unless the firm accepted the valuation, Progate would sue T, W & S. Although T, W & S knew that Progate's suit was frivolous and unfounded, it wished to avoid the negative pub- licity that would arise from any suit brought against it. Therefore, on the assumption that the overvaluation would not harm any- body, T, W & S accepted Progate's inflated valuation of inventory. Progate subsequently went bankrupt, and T, W & S is now being sued by (1) First National Bank, a bank that relied upon T, W & S's statement to loan money to Progate, and (2) Thomas, an inves- tor who purchased 20 percent of Progate's stock after receiving T, W & S's statement. What are the rights and liabilities of First National Bank, Thomas, and T, W & S?