Shareholders in GGL are disappointed about its falling share price. A number of

Question

Shareholders in GGL are disappointed about its falling share price. A number of issues may have affected the price, including a fall in the price of gold and a damages claim against GGL. The claim began three years ago as a result of GGL undertaking mining operations without a mining lease on land that they did not own. As a result of this action GGL has had to cease mining on this section of their mine in the current financial year. Although the claim was made some time ago, a large contingent liability for the amount was only included in the previous year’s accounts. Considerable concern about the significant damages claim was raised by shareholders at the last annual general meeting. Many voiced the opinion that this contingent liability should have been included in previous annual accounts, claiming negligence by the auditors. Required: With reference to relevant case law, prepare a report for the managing partner of MYH on the strength of any negligence case that GGL might bring against MYH. The report should follow standard report structure. Information on report writing can be found here.

Explanation / Answer

Introduction:

GGL company had prepared its financials according to the US GAAP, but due to some accounting confusion was unable to report the contingent liability in the previous years rather they have reported it in this year which was a mistake on their part. But they trust their external auditors and believed that they would correct them for any kind of mistake or atleast bring it to their notice. But MYH has failed to perform their duty diligently and has not noticed or ignored the contingent liabilities claim.

Conclusion: Hence the negligence should be brought to the notice of MYH's management, and they must be liable to pay damages.

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