Question Tag: Technology Investment

Priscilla Publications
Priscilla Publications (Priscilla) is a long-established publishing company. In the last two years, it has made significant losses as a result of its investment in technology and in particular, the high-tech environment of e-commerce. This investment and the company’s sound future prospects have led to a good Stock Exchange rating since they are generally seen as leading edge in this field, with good preliminary sales and strong feedback on the ease of use and marketability of their website.

Priscilla’s investments have been funded through use of their reserves built up over many years. However, two weeks ago, Priscilla’s shares were suspended, having fallen by 90% on rumours that reserves had been significantly overstated and that they were no longer financially viable. Your firm, as the auditors, has come in for significant criticism and is being accused of negligence. Your firm is also being threatened with legal action in relation to the lack of due care in preparation of the financial statements.

Required:
Explain the legal position of your firm, the requirements for due care and the steps and procedures the firm could have taken to prevent such a situation occurring.