Fortex Scandal

1181 Words Sep 20th, 2009 5 Pages
Assignment 1: Scandals in Auditing Fortex Introduction Fortex was regarded as one of New Zealand’s top companies. They used innovative technology to add value to their product. They won awards, looked after employees, and paid suppliers well. But when the company collapsed in March 1994 it was revealed that the success was all based on false accounting. The management team was able to fool a company of respected auditors as well as everybody else for more than three years. Thousands of people suffered as a result. The Organization, the time, and the place Fortex was a meat processing company formed when four companies merged in 1985. The company was listed on the Stock Exchange in 1990. Most of the firm’s business …show more content…
Second-ranked creditors were mostly foreign banks. {text:list-item} Unsecured creditors did not recover their money. They lost around $66 million (Hutching, 1995). Unsecured creditors included farmers who had supplied stock but had not yet been paid, transport companies who had not been paid for their services, and unsecured lenders. {text:list-item} 1800 Fortex employees lost their jobs as a result of the receivership. Many of these employees lost even more than their jobs because they had been receiving shares as part of their wages, these shares were now worth nothing (Beaumont, 2004). Auditors and their role Price Waterhouse was responsible for the audit of Fortex. Price Waterhouse said that the 1993 financial statements provided a ‘true and fair’ view of the financial position of the company. In these financial statements assets valued at $217 million reported. They were later found to be worth $90 million. A loss of $4.8 million was reported. The actual loss was later found to be closer to $50 million. “Had these professionals uncovered the false reporting the company may well have been saved” (Kerins et al, 1999). Price Waterhouse was sued for performing negligent audits for the financial years of 1991, 1992 and 1993. The case was settled out of court in June 2000 with Price Waterhouse agreeing to pay out most of the money owing to first-ranked

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