Excregrow Ltd was a very successful fertiliser company operating in Sussex. The company had large stocks of fertiliser held in different locations throughout the county. The annual audit for 30 June 20X0 was completed by Detmold Forster, a firm of chartered accountants.

It signed the audit report on 25 August 20X0.

Manuremate Ltd made a successful takeover offer of Excregrow Ltd during September of 20X0. However, when some of the financial staff of Manuremate began to have a look at the financial statements of Excregrow, they found that the stocks were substantially overvalued. This overvaluation of stocks resulted in Manuremate offering a higher value for the company than it would have otherwise. Manuremate subsequently took court action against Detmold Forster for the losses it had incurred due to this overstatement.

In the subsequent court case, it was found that stocks had been overvalued due to Detmold Forster relying on management’s representations about the value. It appeared that a large amount of the stock was worthless because it contained some very damaging weeds. The review of the auditors’ working papers also discovered that its staff had not attended the stock count in Sussex, because the majority of the stock was in Kent. From the working papers it was discovered that 40 per cent of the stock was held in Sussex.

Required

(a) Prepare a case against Detmold Forster to prove it acted in a negligent way (refer to Auditing Standards and cases where appropriate).

(b) Do you think that Manuremate will win the case? Explain.