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Dear Mike,
I sincerely appreciate the great work you put up here. May God bless you abundantly.A question on this case – Could the fact that JEB paid above what they agreed with the coy not suffice as a consequential loss?
I mean, they would have only paid 40k or even decide not to acquire the coy anymore if they saw the true representation of the Financial statements. Or did they loose this case because the purpose of an audit opinion is not so potential investors make investment decisions?
Also, on the statement that audit opinion is not for investment decision making – investors in reality rely on fin statements to analyze financial performance of a coy and decide whether or not to invest their funds.
This financial statement needs to be true and accurate, hence, the playfield of an auditor, if an auditor gives a negligent or inaccurate opinion, this will mislead an investor to somewhat wrong decisions due to their reliance on the opinion giving by auditor.Is this part never considered?
‘Or did they loose this case because the purpose of an audit opinion is not so potential investors make investment decisions?’ – that’s the point!
It was said by a judge in a different case that ‘It would be unreasonable to hold an auditor liable to an indeterminate group of people for an indeterminate amount for an indeterminate period of time’
Incidentally, I’m cringing at your use of the word ‘accurate’! You write ‘… financial statement needs to be true and accurate’. ABSOLUTELY NO, NO, NO! The 1948 Companies Act removed the expression ‘accurate and correct’ (from memory) and replaced it with ‘true and fair’
If you want to talk about accuracy, to what degree would you expect that accuracy? To the penny?
It’s here again where you write ‘…if an auditor gives a negligent or inaccurate opinion’. Again, incidentally, technically how can an opinion be ‘accurate’?
And finally, you write ‘…investors in reality rely on fin statements to analyze financial performance of a coy and decide whether or not to invest their funds.’ That is so far from reality that I wouldn’t know how / where to begin to disillusion you. In my brief experience whilst working at a stock-broking firm in Manchester, I accompanied, as part of my training, one of the partners on a ‘company visit’ where we sat with the chair of a large public company and ‘chatted’ about how the company was doing and whether it was achieving its financial performance targets. Then a working lunch with some more chat. And then back to Manchester now armed with all sorts of snippets of information to include in a ‘broker’s opinion circular’ to be distributed amongst the privileged clientele of the firm’s clients. So much for your ‘reliance on audited financial statements’
One of my senior fellow employees was actually flown to the Caribbean to spend a week at the hotel owned by a public company and then onto New York to spend some quality time at the company’s head office. He returned with a set of the company’s final draft financial statements and proceeded to call round his favoured clients with phone call extracts similar to ‘I believe that the pre-tax profit will be around £4 million and that would be an increase of £1 million compared with last year’
And, whilst on the phone, he had the unpublished financial statements open in front of him!
You write ‘…investors in reality rely on fin statements to analyze financial performance of a coy and decide whether or not to invest their funds.’ Hmmm!
OK?
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