Yohanan: Just the management and the policies of the past and seeing what the actual results are, I can't tell you. I don't (hear) that thing."
The continuation of CPA Gav's investigation shows that not each grower was inspected individually, and the rest of the investigation does not indicate that an examination was conducted, even a sample, of the growers (Appendix 7 to Aviv's opinion, at p. 85):
"Haim Kamil: I'm the only one who can't understand except that you were told, how did you check that it was really like that?
John: Her name?
Haim Kamil: It's really money that is meant to preserve their loyalty in the future. How did you check that it was like this, that it was true?
John: Look...
Haim Kamil: Not what they said, what did they say we...
John: I didn't go to every tower, to every pole...
Haim Kamil: No, don't say what you did, say what you did.
Yohanan: So I say: I checked when the payments were made, I checked what the characteristics of these payments are, payments talk about things that are past performances. Is this a bonus..."
- Similar things also arise from the opinion of the defendant's expert, CPA Morad. It appears that even when concerns arose about the management's reports, the defendant made do with the representations she received from the management and did not gather sufficient critical evidence (Morad's opinion, pp. 6-7):
"A review of EY's working papers shows that the only industry in which there was a decline of more than 10% was the spice industry, where the decline was 14.7%. The auditors examined the amount of the required reduction in respect of the spice industry, for which the advances amounted to €1,558,000, and therefore the required reduction is €229,000. The auditors referred to this amount in the working papers and accepted the position of the company's management not to make the reduction, among other things, due to the fact that the decrease was in the quantity of tonnage marketed but there was no decrease in the number of growers in the field of spices.I am of the opinion that the profits have reached a reasonable conclusion that the reduction of $229,000 can not be made."
- An accountant is not allowed to settle for inquiries with management alone. He must use caution and diligence to verify the reliability of the information given to him. Sufficing with explanations from the management or the CEO without requiring external approvals or additional details about the financial situation of substantial assets is considered to be the provision of professional service that does not meet the required standard of care (a particular case, at paragraphs 16-18 of the judgment of Justice Y. Cohen). This is what emerges from the Mendzitzky case, where the decision dealt with a clear case in which an accountant recognized the loans as an asset on the balance sheet without contracts or legal documents attesting to the terms of repayment, and it was determined that this was a breach of the duty of professional care (ibid., in paragraphs 541 and 546 of the judgment of the Honorable Justice H. Kabub):
"541. It is clear that with regard to the recognition of the loans provided by the funds to companies owned by Segal as an asset, CPA Aviel breached the duties imposed on him as an auditing accountant. Recognition of significant loans as an asset on the balance sheet, when there is not even a single document attesting to the existence of an obligation to repay them, maturity dates, collateral and interest, is inconsistent with the auditor's obligations to conduct his audit with proper professional caution, and to ensure that he has all the relevant information in order to give his opinion on the financial statements. The financial situation of the private companies owned by Segal and the fact that Segal used to transfer funds frequently between these companies should have increased CPA Aviel's inquisitiveness when conducting the audit. The fact that the loans were in significant sums and were given to parties related to the staff, and despite this there were no evidence of the existence of the loans, should have raised a red flag for CPA Aviel, that there were irregularities in the financial conduct of the funds. Since he did not have such references, at the very least, CPA Aviel should have made reservations in his opinion on the financial statements from the representations related to the loans in question."