A: That's right.
Q: And in fact, even from the report you showed me later, of 2008, it does not appear that the special payments are recognized as an asset. It is not written. Write other things and write advances on an inventory account which is another thing.
A: That's right."
...
Q: I tell you that the special payments did not appear, not in the 2006 report, not in the 2007 report, not in the 2008 report, not in the 2009 report. They were deducted from their commitments. Are you aware of this?
A: I don't think the word offset is the right thing. I do agree with you that there was no clarification of the policy that came and said, advances on the account, advances to suppliers are registered as an asset. I agree with you unequivocally, it's a fact. "
This is also evident from the continuation of CPA Gottlieb's interrogation (Transcript, p. 943, questions 12-25):
"Q: In paragraphs 15.2 and 15.3 of his first opinion, that is, apart from giving an explanation of the accounting policy, and besides the fact that the advances to these suppliers, which he claims are advances to the suppliers and not offset them, he adds that "there was room to include in the commentary on the company's accounting policy an explanation of the manner in which the company took the advances to suppliers, in order to ensure the continued supply of produce. The value of this disclosure is also sharpened in light of the fact that the company included in the commentary on the accounting policy of the explanation, regarding the advances paid to suppliers on account of inventory, which were included in the other debtors section." Do you also agree with his assertion that an explanation should have been given regarding the accounting policy that could not be given?
A: Sure. I'm telling you, too, that he should have given.
Q: Okay.
A: It's not right that they didn't give it. "
- This duty of due diligence derives from the principle of fair presentation: the reports must tell the full story of the company's condition, in order to ensure comparability with the company's financial statements for previous periods and with the financial statements of other entities (Article 1 of IAS 1; Civil Appeal 218/96 Iskar in Tax Appeal v. Discount Investment Company Ltd., at para. 25 [Nevo] (August 21, 1997); Class Action (Economic) 49602-11-11 Shlomo Peugeot v. Michael Hirshberg, at para. 159 [Nevo] (July 28, 2016) (hereinafter: "the Hirshberg case")). In the absence of explanation, a person who relies on the reports would not have known that some of the liabilities to the growers were in fact repaid by means of one-sided advances. This impaired the ability of users of the reports to make informed decisions, contrary to the purpose of financial reporting.
- Failure to disclose this material information exceeds the obligation to disclose according to the standard. As stated, the defendant's expert, Prof. Eden, confirmed in his interrogation that the disclosure made on the issue was insufficient. In light of this, the accountants should have insisted on proper presentation in the form of non-offsetting of the asset and an undertaking, or at least a clear disclosure of the offset itself and its significance.
Conclusion
- It appears from the aggregate that the recording of payments to growers as an asset on the company's balance sheet does not meet the requirements of the accounting standard that applied at the relevant times, which required the fulfillment of cumulative conditions of identifying a controlled resource and the expectation of future economic benefits that can be reliably measured; These conditions were not met in our case to the required extent, and therefore the payments were of the nature of an ongoing expense involved in the company's business activity and not of an investment that creates a sustainable asset under its control.
- From the evidentiary aspect, and after weighing the totality of the opinions and testimonies, I found Dr. Ronen's opinion to be more convincing, as it is anchored in the relevant standardization hierarchy (the conceptual framework, Standard 30 and IAS 38) and the threshold requirements regarding control and identification, while Prof. Eden's opinion and the defendant's affidavits relied to a large extent on inferences from cases that are not similar in material matters (the existence of agreements, rights of offset, advances that can be reduced from consideration or the right of restitution) and a general preference of "economic essence" that cannot prevail in the circumstances of the case over the express requirements of the regulation for the recognition of an intangible asset; This is joined by admissions on behalf of the defendant and its witnesses regarding the offset and the disclosure of the deficiency, which strengthen the conclusion that the registration and presentation deviated from the binding standard.
The Auditor's Duties and the Manner of Conducting the Audit