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Reaching Key Financial Reporting Decisions: How Directors and Auditors Interact by Tony Hines, Vivien Beattie, Stella Fearnley

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9

Case 5 — Cormorant plc

If we go back to IFRS 3 where we spent four months arguing about what is potentially a misleading statement in the accounts, you question is it achieving anything, is it worth it in the first place? (William, finance director)

9.1 BACKGROUND TO THE CASE

Cormorant plc is a small FTSE high quality lingerie manufacturer which has a market both in the UK and in Europe. The company has a number of overseas subsidiaries which supply specialist fabric, including Eagle, which had recently been acquired.

The company was founded by the current Chairman some years ago. It was floated later to finance growth, which had only partially been achieved. The Chairman retains a substantial holding of the ordinary shares of the company. Other members of the family also hold shares which, with the Chairman's holding, represent a significant, but not a majority, stake. This means that the company is not subject to a high level of external pressure from outside investors and potential predators.

The finance director is William (aged in his 40s), a qualified accountant. He had joined Cormorant some years ago as chief accountant and shortly afterwards became finance director. William has limited accounting support within the company particularly as the company is not very profitable and costs have to be controlled.

The audit committee chair, Dave (in his 50s), had been in post for a couple of years. He is also the senior independent non-executive director. Dave is an experienced ...

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