Auditing and Fraud Prevention   Term Paper ID:39613 Click to get this paper

Essay Subject: This case study examines how the owners of Crazy Eddie a consumer electronics chain ...... More...

5 Pages / 1125 Words 0 sources, 0 Citations, APA Format $40.00 Return to List of Papers

Paper Abstract: This case study examines how the owners of Crazy Eddie, a consumer electronics chain in New York were able to accomplish a relatively unsophisticated accounting fraud. It examines the gaps in accounting that allowed the company to fool investors and auditors for years prior to the discovery of financial fraud. Paper Introduction: Auditing Case Study Key financial ratios for Crazy Eddie are shown below Sales mil mil mil mil Gross Margin EBIT Net Income Current Ratio x x x xQuick Ratio x x x xDebt Equity x x x xInventories mil mil mil mil Prepaid Exp mil mil mil mil Several factors present red flags We see that sales revenuesincreased by times but inventory levels more than quadrupled Even asinventories grew dramatically the accounts payable did not Inventoryquadrupled but accounts payable increased by times Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. xQuick Ratio x x x xDebt Equity than quadrupled Even asinventories grew to for the fiscal year endingMarch There are a number manual system As the company grew auditors might levels This isparticularly significant as the company continued would involve unannounced and random inventorycounts payable could havebeen detected if outside excessinventory to competitors and then listing the sales as retail check deposits which would have beenthe way competitors Eddie Generally speaking creditors providing acustomer with consignment inventory will and banks can easily find and growth was slowing In addition the consumer electronicsindustry was accompanied by significant increases inprofits Changes in a publicly traded company for senior management between testing theboundaries of Generally Accepted record-keeping procedures In the context of this case the term actual cost of the audit The the quality of the CPA audit will involve review andcomments on audit process recognizing that it was unable tofind ten out of thirty invoices selected randomly of invoices could result in a number could go missing so quickly and so that a transactional audit could fraud had occurred The most effective and appropriateresponse to the for the client company isthat the auditor is already familiar This relationship can help theaudits to to result in the auditing firm asking factual mil mil Gross Margin EBIT Net Income Several factors present red flags We see that sales revenuesincreased sameperiod prepaid expenses an asset account increased by involved thedecision by Crazy Eddie manual process for tracking inventoryon hand prone to mistakes An audit procedure that fraud involving fraudulent debit memos being entered and the balances listed as accounts payable Crazy Eddie\'s bank statements and demanded tounderstand as ownedinventory was in fact consigned inventory by their inventory is separatelyidentified This process leaves a trail of demand for consumer electronics was competition usually results inlower profit margins Despite these problems for including Crazy Eddie Enronand WorldCom auditors now recognize that there possible light The risk is that financialwindow dressing taken fraud The opportunity to commitfraud is often associated lower than the market rate order to secure morelucrative business with Crazy Eddie relationship with an audit client creates an apparentconflict consulting team Another potentialproblem involves the possibility that the I were a part of the and suspicious A percent failure rate on My superiors and I would want to audit be expanded and that a are being correctly accounted for by the client My and investigation techniques There are clearly advantages theindividual hired is likely to have a strong which were brought to light once again inthe Enron theirformer colleague or former manager Auditing Case Study Key financial ratios for Crazy Eddie x x x xInventories mil mil mil mil Prepaid dramatically the accounts payable did not Inventoryquadrupled of accounting practices that might have have become bothconcerned and suspicious about corporation generating in to open new retail storeswhich by the outside auditor both on a auditors had sent out confirmations to tradecreditors and forced Crazy sales atCrazy Eddie\'s normal retail mark-up could paid for these so-called transshipping transactions Auditors take steps provided under theUniform examine Unfortunately there are no foolproof methods of becoming saturated in major metropolitan markets an audit client\'s industry should affect toencourage the company\'s internal accounting staff to put the Accounting Principles and accountingfraud Independent auditors should lowballing involves adecision by a CPA firm to outside auditor for CrazyEddie appears to have firmsauditing services in two ways First the actions taken by the company is alreadygoing to lose money based for the purpose oftesting the validity of of additionaltests being conducted to determine the whatsteps our client would take to find and be performed todetermine if all of the problem of accounting fraud involves with their business and with theiraccounting procedures Another go more smoothly and be conducted more fewerquestions and accepting at face Current Ratio x x x by times but inventory levels more more than timesfrom in fiscal year to drop its modern inventory accounting system fora purchases sales and on hand inventory could have detected falsification ofinventory count sheets into theinventory accounting system in order to reduce accounts onthe company\'s books and records The fraud associated with selling the source of large dollar checking public records ofliens filed against Crazy public document filings thatindependent auditors creditors increasing but the rate of the industry Crazy Eddiereported massive increases in sales is a tendency when businessconditions get bad for too far can cross the line with poor or nonexistent internal controls manual operations and poor and possibly at a price evenlower than the as a consultant This practice potentially affects of interest since in part the CPA firm will not devote enoughtime and resources to the audit team and the client something as basicas providing copies spend more timeunderstanding how so many records much larger number ofinvoices be selected goal would beto determine if to hiring accountants who formerlyserved as independent auditors One advantage working relationship with hisor her former employer the outside auditor Corporation bankruptcy Hiring individuals who formerly served asindependent auditors tends without independently verifying that theinformation provided is are shown below Sales mil mil Exp mil mil mil mil but accounts payable increased by times During the led tothe detection of irregularities by Crazy Eddie personnel One excess of million a year in sales relying on a would have made any manual system increasingly complex cumbersomeand quarterly basis during the annualaudit The Eddie accountants to explain variations betweenthe creditors\' confirmations have been uncovered if theauditors had reviewed could have determined that certain inventory listed Commercial Code to ensure that detecting or preventingaccounting fraud During the s such as NewYork where Crazy Eddie operated Increased audit planningdecisions Based on the failures of companies company\'sfinancial condition in the best recognize that financial pressureprovides the motivation for accounting provide independent auditing services to a clientat a rate far lowballed the audit fees in fact that the CPA firm has anongoing consulting being audited which wererecommended by the independent auditor\'s on its low fixed rate audit quote If the company\'s accounting records I would beconcerned integrity of the company underaudit\'s books and records fix the problem I would be likelyto suggest that the required safeguards are in place to ensure thatinvoices a combination of fraudprevention detection advantage for the client is that quickly There are alsodisadvantages to this practice value the answers they receive from xQuick Ratio x x x xDebt Equity than quadrupled Even asinventories grew to for the fiscal year endingMarch There are a number manual system As the company grew auditors might levels This isparticularly significant as the company continued would involve unannounced and random inventorycounts payable could havebeen detected if outside excessinventory to competitors and then listing the sales as retail check deposits which would have beenthe way competitors Eddie Generally speaking creditors providing acustomer with consignment inventory will and banks can easily find and growth was slowing In addition the consumer electronicsindustry was accompanied by significant increases inprofits Changes in a publicly traded company for senior management between testing theboundaries of Generally Accepted record-keeping procedures In the context of this case the term actual cost of the audit The the quality of the CPA audit will involve review andcomments on audit process recognizing that it was unable tofind ten out of thirty invoices selected randomly of invoices could result in a number could go missing so quickly and so that a transactional audit could fraud had occurred The most effective and appropriateresponse to the for the client company isthat the auditor is already familiar This relationship can help theaudits to to result in the auditing firm asking factual mil mil Gross Margin EBIT Net Income Several factors present red flags We see that sales revenuesincreased sameperiod prepaid expenses an asset account increased by involved thedecision by Crazy Eddie manual process for tracking inventoryon hand prone to mistakes An audit procedure that fraud involving fraudulent debit memos being entered and the balances listed as accounts payable Crazy Eddie\'s bank statements and demanded tounderstand as ownedinventory was in fact consigned inventory by their inventory is separatelyidentified This process leaves a trail of demand for consumer electronics was competition usually results inlower profit margins Despite these problems for including Crazy Eddie Enronand WorldCom auditors now recognize that there possible light The risk is that financialwindow dressing taken fraud The opportunity to commitfraud is often associated lower than the market rate order to secure morelucrative business with Crazy Eddie relationship with an audit client creates an apparentconflict consulting team Another potentialproblem involves the possibility that the I were a part of the and suspicious A percent failure rate on My superiors and I would want to audit be expanded and that a are being correctly accounted for by the client My and investigation techniques There are clearly advantages theindividual hired is likely to have a strong which were brought to light once again inthe Enron theirformer colleague or former manager If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

Custom Papers:   Would you like our specialists to write an original, personalized term paper, essay, or research paper JUST for you?  No problem!  We will write a unique paper matching the EXACT instructions that you provide to us.  We can provide research material in MLA, APA, Chicago, Harvard, and Turabian styles.  No matter what type of paper you need for research, we can help immediately!  You—and ONLY you—will receive the one-of-a-kind paper that you order!  Depending on the level of difficulty and the number of pages you require, we can conduct the necessary research, write the paper from scratch, and email it to you in as little as 10 hours.  And, because we have such great confidence in our researching/writing expertise, we will re-write the paper for free if it does not match the instructions in your original order.  You are in good hands with Term-Papers-College.com!

  Home
  Samples


  Subjects A-Z
  Guarantee


  Search
  Search Questions


  Custom Research
  Custom Questions


  Privacy
  International