Royal Mail Case

The Royal Mail Case or R v Kylsant & Otrs was a noted English criminal case in 1931. The director of the Royal Mail Steam Packet Company, Lord Kylsant, had falsified a trading prospectus with the aid of the company accountant to make it look as if the company was profitable and to entice potential investors. Following an independent audit instigated by HM Treasury, Kylsant and Harold John Morland, the company auditor, were arrested and charged with falsifying both the trading prospectus and company records and accounts.^[1] Although they were acquitted of falsifying records and accounts, Kylsant was found guilty of falsifying the trading prospectus and sentenced to twelve months in prison. The company was then liquidated, and reconstituted as The Royal Mail Lines Ltd with the backing of the British government.

As well as its immediate impact, the case instigated massive changes in the way companies were audited. In 1947, the Companies Act was passed, criminalizing the failure to disclose the use of secret reserve accounts.^[1] The case highlighted flaws in the way company accounts were reviewed, and "probably had a greater impact on the quality of published data than all the Companies Acts passed up to that date".^[2] The case "fell like an atomic bomb and profoundly disturbed both the industrial and the accountancy worlds",^[2] and has also been linked to reduced public trust of big businesses. The case is also seen as the reason for the demise of accounting with the aid of secret reserves.^[2]