DUTIES OF AUDITORS:
The duties of auditors are explained in the following cases.
1. RE: KINGSTON COTTON MILL CO. (1896)(CHANCERY)
For some years before a company was wound up, balance sheets signed through the auditors were published by the directors to the shareholders in which the value of the company's stock-in-trade at the end of each year was grossly overstated. The auditors relied on certificates, willfully false, given by J., one of the directors who was also manager, like to the value of the stock-in-trade. Therefore dividends were paid for some years on the footing that the balance sheets were correct but if the stock-in-trade had been stated at its true value it would have appeared that there were no profits out of which a dividend could be paid.
i) In each case the amount of stock-in-trade at the end of the year was entered in the balance sheet "as per manager's certificate".
ii) The manager was a man of great business ability and of high repute , and up to the stoppage of the company was trusted by everyone; but he had designedly exaggerated the value of the stock-in-trade in order to make the company appear prosperous.