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ACCA exam tips released today but this individual won’t be running free range over the exams…

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A mixture of intelligence, hard work and dedication are needed to ensure success in the exams. No training company knows for sure what will actually be in the exams next month but our tips identify areas which we believe you should have covered particularly well.

For those of you sitting audit, ethics or law papers the following case shows an individual who clearly didn’t show intelligence, hard work and dedication.

Organic and free range eggs are becoming more popular in the UK with a premium being paid as a result of the expense of feeding the chickens with natural produce and letting them roam free.

An individual by the name of Keith Owen was recently jailed for 3 years as a result of mis-describing eggs as free range when they were in fact battery hen eggs. The judge also made Owen surrender the £3 million profit he made and stated that it was “a carefully planned and executed fraud by false accounting” (false accounting by altering records to hide the fact that the eggs weren’t free range).

The scale of the fraud was phenomenal. He defrauded all the major UK supermarkets, including Tesco and Sainsbury, as well as numerous small shops by selling them approximately 100 million (yes, one hundred million) battery eggs as free range eggs.

The fraud started to come to light when it was noticed that the number of free range eggs sold by his company was more than could be laid in all the farms in the UK.

There were also complaints from a number of lorry drivers that would drop off consignments of battery eggs at his factory, be told to wait a few hours and then pick up some free range eggs to be delivered elsewhere. The free range eggs were suspiciously of a similar quantity to the battery ones that had been dropped off a few hours earlier with the only difference being a new label on the packaging!

Now, I don’t know whether Mr. Owen ever considered attempting the ACCA exams but in terms of “intelligence, hard work and dedication” then somehow I just don’t think so.

Do you know your cucumbers from your mussels?

Students studying law topics often worry about the need to quote cases in their exam answers, but their can be little doubt that the ability to do so can only enhance the quality of your answers and the impression that you create with the marker.

UN Case 48

In this case, a German buyer of cucumbers (from a Turkish seller) sought to obtain a price reduction on the grounds that the cucumbers supplied were not of the specified quality under the terms of the contract.

The buyer’s application was dismissed on the grounds that they had waited too long in notifying the seller as to the non-conformity of the goods. This was because they were inspected by the buyer’s representative in Turkey, but the notification was not given until the cucumbers actually physically arrived in Germany seven days later.

UN Case 84

This was a truly international contract for sale of goods, in that it involved the sale of New Zealand mussels, by a Swiss seller to a German buyer.

On delivery to Germany, the Mussels were impounded by the German authorities, as they did not comply with German regulations in that they had too high a cadmium content, and so the buyer refused to pay for the goods.

It was held that the buyer had to pay for the mussels, as they would have been classed as fit for human consumption under Swiss law and there was no way in which the Swiss seller could have been aware of the stricter German regulations, in the absence of notification of this to them by the buyer.

Auditors cleared in landmark negligence case

This was one of the headlines that recently caught my eye, remembering that auditor’s liability is one of the few ‘new topics’ in ACCA P7.

In August 2009, the UK Law Lords on a split decision (3:2) upheld an earlier ruling by the Court of Appeal in a multi-million pound action brought by the liquidator of Stone & Rolls (a commodity trader) against their auditors Moore Stephens.

The Law Lords ruled that the auditors were not liable for failing to detect a £58 million fraud perpetrated over a number of years.

The fraud involved the CEO of Stone & Rolls, a Croatian businessman called Zvonko Stojevic, using the firm as a means of defrauding banks by means of a letter of credit scam.

The split decision perhaps provides less clarity than the auditing profession might have wished for in relation to the court’s view on an auditor’s liability for the detection of fraud.

The senior Law Lord, Lord Phillips, said “It does not seem just that in these circumstances, Stone & Rolls should be able to bring about a claim that it had set about inducing.”

Lord Manse, dissenting said “the world has sufficient experience of Ponzi schemes ….. for it to be questionable policy to relieve from all responsibility auditors negligently failing in their duty to report on such companies’ activities.”

We could be seeing a whole number of new claims against auditing firms worldwide as companies go into liquidation in the current economic crisis.

What’s your view on this case? Who knows the examiner might ask you!

Nice car, shame about the usage…

As promised, the blog will be used to build up your database of decided cases for ACCA F4 purposes and increase your CLOUT in the F4 exam room.

Case 190 1997

The defendant, an Austrian seller of imported Italian cars, sold a Lamborghini Countach to the plaintiff, a Swiss buyer. The seller, however, was not able to make delivery of the car to the buyer.

The court held that as the car was purchased for personal use (if I had one I wouldn’t let anybody else drive it!), in accordance with Article 2(a), the CISG did not apply to the case.

However, the court indicated that the CISG could have been applied to the case if the fact that the seller ‘neither knew nor ought to have known that the goods were bought for any such use’ had been proved by the buyer.

What kind of dog are you?

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Way back in 1896 in the famous Kingston Cotton Mill Case, was Lord Justice Lopes suggesting that auditors need a dog licence?

The facts of this case were basically that an action was brought against the auditors of the company for negligence, in failing to detect a fraud which involved the management of the company wilfully overstating the value of the company’s inventory.

In finding that the auditors were not guilty of negligence, the Judge famously said the following:

“An auditor is not bound to be a detective, or … to approach his work with suspicion, or with a foregone conclusion that there is something wrong. He is a watchdog, not a bloodhound.”

The Oxford English Dictionary provides us with the following definitions:

Watchdog: ‘A dog kept to guard private property.’

Bloodhound: ‘A large hound with a very keen sense of smell, used in tracking.’

It’s a long time since 1896 and nowadays, there is perhaps more a way of thinking that auditors should be a little bit less of a sleepy old watchdog, and rather more of an active bloodhound.

Make sure that you are up to date on an auditor’s responsibility for detection of fraud.

Looking for a good bedtime read?

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Reporter Norman C. Miller won a Pulitzer Prize in 1964 for his reporting on the De Angelis story.

Tino De Angelis was the ‘brains’ behind ‘The Great Salad Oil Swindle’ (the name of the book).

This case showed quite clearly that attendance at stocktaking by an auditor, will not provide, in itself, sufficient appropriate audit evidence on which to base the audit opinion.

I have always found one of the most interesting ways of studying internal control systems and auditing procedures is by looking at reports on frauds, indicating where things have gone wrong in real life.

Last time I looked on Amazon there were some copies of one of my favourite books available, alternatively perhaps try your local library.
Happy bedtime reading!