Bre-X Minerals Ltd. (Bre-X), a small mining company based in Calgary, was involved in one of the biggest stock scandals in Canadian history and the biggest mining scandal of all time. The company announced in the early 1990s that it had discovered a significant gold deposit in Indonesia, after which its share price skyrocketed from pennies a share to more than $285 per share. In 1997, it was discovered that the company had tampered with samples by “salting” crushed ore with gold and that there was little, if any, gold there. Shareholders lost billions of dollars and sued the company and its management for providing misleading information.
Investors have had little luck to date in getting back their money. In 2010, the former chief geologist of Bre-X was found not guilty of insider trading and misleading investors. Some of the class action suits have collapsed and other civil suits are still proceeding slowly through the courts.
Instructions
(a) What is the objective of financial reporting? Did Bre-X’s reporting meet this objective? Explain.
(b) Describe the fundamental and enhancing qualitative characteristics of useful financial information. Which of these, if any, were violated by Bre-X?
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