Assignment 1: Scandals in Auditing
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 was slaughtering sheep and lambs in the south island. They also had a venison processing plant in the north island (Securities Commission, 1995).They focused on value added processing. Instead of selling the carcass whole they would process it further into vacuum packed cuts of meat. During the early 1990s Fortex was seen as one of New Zealand’s best companies. They won many awards including 1990 Company of the Year, 1992 Trade New Zealand export award, and a Best Corporate Strategy award (MacLennan, 1996). Despite winning these awards the company gained a reputation for not achieving financial performance projections and delivering lower returns than other firms on the stock exchange (Securities Commission, 1995).The driving force behind Fortex was Grahame Thompson. He had a strong vision for the business and was very ambitious. (MacLennan, 1996) What happened? On 11 March 1994 Fortex announced that they expected a $45 to $50 million 6-monthly loss. This was a huge surprise because they had reported profits of $ 4.8 million in 1991, $9.2 million in 1992, and a loss of $4.8 million in 1993. The loss in 1993 could be explained by the 1992 snow storm in the south island having an adverse effect on supply. The share price...
References: Braddell, R., 2001, Fortex payout within weeks, The New Zealand Herald, July 16 Newztext Plus Database Available at: http://www.knowledge-basket.co.nz.ezproxy.auckland.ac.nz/search/doc_view.php?d35=nzh02/text/2001/01/12/doc01508.html Through the Auckland University Library website [accessed 3 August 2009]
Securities Commission., 1995. Report on an inquiry into aspects of the affairs of Fortex Group Ltd. Available at: http://www.sec-com.govt.nz/downloads/report-on-inquiry-into-aspects-of-fortex.pdf [accessed 3 August 2009]
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