Nature of the dispute
Under the terms of an agreement, the plaintiff company was required to provide its financial statements to the defendant company every year. The agreement stated that those financial statements were to be prepared in accordance with generally accepted accounting principles and practices. A dispute arose as to the meaning of the relevant clauses in the agreement. A question also arose as to whether the financial statements produced were strictly ‘financial statements’ and whether they were audited within the usual meaning of that term.
Our role
We provided several reports covering different aspects of the case. One report addressed in great detail the requirements of accounting standards for the content and format of financial statements, including what types of documents are financial statements and which standards were compulsory and which were not. We presented an opinion that compliance with Australian accounting standards may mean applying very few of them indeed. We prepared another report that considered when an audit may be considered to have been performed, and whether any deficiencies in financial statements were ‘material’ deficiencies.
Outcome
Our evidence withstood a strong challenge during cross-examination and was accepted by the court. Among other things, the court accepted our views that the financial statements did not lose their character as financial statements, merely because the requirements of particular accounting standards were not followed - particularly given that compliance with those standards was not compulsory.
