Solution Library

Professional Negligence and Misrepresentation by an Audit Firm

Question

Elvis, a shareholder in Holly plc, read the company’s audit, which had been prepared by Mercury & Partners. The audit valued the assets of Holly plc at £8 million. On the strength of that, Elvis purchased more shares. His wife, Dionne, also read the audit and bought some shares in Holly plc for herself. Another company, Ivy plc, who already owned some Holly shares, had also seen the audit prepared by Mercury. They contacted Mercury, saying they were considering a takeover of Holly plc, and asked for further financial projections about Holly’s likely performance. This was supplied by Mercury and following this Ivy purchased enough of Holly’s shares to take over the company.

Excited by the thought of his impending riches, Elvis decided to drive his friend Kate to the airport so she could catch an overnight plane to Canada for an important meeting. They were held up in traffic and Kate was convinced she would miss her flight. After they had waited at a red light for a long time Kate shouted: ‘You stupid fool, the lights have jammed. There is not a thing in sight. Get a move on’.  Elvis could not see any traffic approaching and moved across the junction. He hit a bicycle ridden at speed by Edward, who is wearing dark clothing and has no lights on his bicycle. Kate, who is not wearing a seat belt is injured and Edward who suffers from a heart condition has a heart attack brought on by the stress of the accident.

It has since become known that Mercury & Partners carelessly prepared the audit and that, in truth, the assets of Holly plc were worth only £1 million. As a result, Elvis and Dionne have each lost £100,000 on their shares. The financial projections prepared by Mercury for Ivy were also shown to be wrong causing a large loss to Ivy plc.

Critically discuss how the law of negligence might be applied:

(i)    To Elvis and Dionne’s claim against Mercury
(ii)    To Ivy’s claim against Mercury
(iii)    To Edward and Kate’s claim against Elvis

Summary

This is a sample case study which deals with negligence. An audit firm which misrepresented the financial position of a company had been sued for professional negligence by a third party who invested in the company whose financial position had been misrepresented. The possible claims in the above case have been given in the solution.

Total Word Count 1497

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.