Accountability, Representation and Control (MN7262)

Assignment Question
Patisserie Valerie is a large café
chain which has been operating in the
UK since 1926. The chain specialises
in the manufacturing and sale of cakes
and other baked goods in addition to
offering a wide variety of other food.
The bakery is 37% owned by
renowned entrepreneur Luke Johnson.
Since Johnson’s acquisition of the
business in 2006, the chain has
expanded tremendously to now operate
almost 200 stores across the UK and
Republic of Ireland.
On the 10th of October 2018, Patisserie Valerie was notified of the suspension of all trading in
the company’s shares. This was due to the discovery of a black hole in the company’s accounts
of more than £20 million. The discovery indicated severe potential fraudulent accounting and
irregularities, as it was a potentially huge material misstatement in the company’s records. The
next day, Patisserie Valerie announced a major shortfall between its reported financial status
and the current financial position of the business. Just one day before this discovery the
company had reported that it held £28 million in cash and on the 11th of October it announced
that it then held -9 million British pounds in cash! The company was to be deemed out of
business if the directors were unable to immediately inject capital into it. Furthermore,
unreported and unauthorised overdrafts of almost £10 million were then discovered on the 14th
of October 2018.
In January 2019, the company announced the failure of its negotiations with banks to obtain
support from their side. Eventually, Patisserie Valerie declared its plans to close 70 of its
operating stores, which meant the loss of almost 900 jobs. Currently, Patisserie Valerie has
succeeded in obtaining a cash injection from its Chairman, Luke Johnson. Also, in mid-
February, 2019 it concluded a management buyout agreement worth £13 million with
Causeway Capital Partners to acquire the company’s assets. Nonetheless, the investigation into
how this fraudulent accounting might have taken place is still ongoing.
The links below will provide you with:
§ A brief discussion of the Patisserie Valerie case from the BBC news
o https://www.youtube.com/watch?v=_ikLT7BwWoE
§ An interview with Chris Boxall; portfolio manager and one of the Patisserie Valerie’s
stock owners, analysing the case
o https://www.youtube.com/watch?v=BrkYfgjfD6k
School of Business Semester 2 – Fall 2019/2020
Accountability, Representation and Control (MN7262)
2
§ A brief on how the company was saved from the ITV news
o https://www.youtube.com/watch?v=RLyaHApMkJA
§ More details on the case from published news articles
o https://www.consultancy.uk/news/19019/patisserie-valerie-finds-potentially-
fraudulent-accounting-anomalies
o https://www.accountancyage.com/2019/01/30/how-did-fraud-come-about-in-
the-patisserie-valerie-case/
Use the information above, the details in the supporting videos and links, the module
material and your own understanding and critical analysis of the key readings discussed in both
the module’s lectures and seminars to find answers to the questions below. You can also use
some of the academic articles available on the ‘recommended readings’ list for this module
available on blackboard.
1) In his interview, Chris Boxall; one of Patisserie Valerie’s stock owners stated that;
“Reality – at Patisserie Valerie – looked really good. I do not think cash can lie, but
accounting can!”
In light of your understanding of the Patisserie Valerie Case and the module’s material:
How do you think accounting representations might have enabled this fraudulent
misstatement incident to take place? In your discussion, provide a detailed critique
of the claim that accounting mirrors and can objectively represent economic
reality.
(25 Marks)
2) Based on your understanding of the term ‘Accountability’:
Discuss how accounting institutionalises the concept of accountability in business
organisations – Draw on the case of Patisserie Valerie to illustrate your discussion.
In your discussion, develop a commentary on how different forms of
accountability can affect relationships between actors in an organisation.
(25 Marks)
School of Business Semester 2 – Fall 2019/2020
Accountability, Representation and Control (MN7262)
3
3) Different parties were discussed in relation to the Patisserie Valerie case; the company
chairman; Luke Johnson, the company’s chief financial officer and Grant Thornton as
the company’s auditor.
Discuss whether it is easy to identify the party/parties who should be held
accountable for the Company’s misstatement. Also, explain the reasons why you
were or were not able to identify an accountable party or parties.
(25 Marks)
4) Answer Both Parts of this Question:
A) Critically discuss how managers’ extreme focus on ‘efficiency’ in organisations
generally affected the development of accounting control systems over time.
(10 Marks)
B) How can we, as accounting practitioners and researchers, contribute to a
better understanding and implementation of the concept of ‘Control’?
(15 Marks)

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