In an article entitled ‘Berry nasty’ that appeared in the Courier Mail on 15 February 2015 (by Greg Stolz), it was reported that people who had eaten a well-known brand of frozen berries were warned to watch for symptoms of hepatitis A. This followed at least five cases of people contracting the illness after allegedly eating Nanna’s frozen mixed berries, which had been sourced from China and Chile. In response, Patties Foods ordered an urgent product recall of its product.

In relation to the same issue, another article that appeared in The Australian on 21 February 2015 by Tim Boreham entitled ‘Patties Foods braces for berry scandal fallout’ discussed the potential financial implications of the product recall. In particular, it looked at the likelihood of a class action being taken and the implications of the product recall on the reputation of the organisation and its products. Subsequent to the product recall, Patties Foods’ shares fell in value by about 12 percent.

REQUIRED

a. In the light of the information, do you believe that it is appropriate for Patties Foods to utilise a contingent liability note as the vehicle to provide information about the organisation’s potential liability in relation to the berry claims?

b. Alternatively, are there any grounds to suggest that Patties Foods should recognise a provision in relation to the berry claims?