Crazy eddie audit case

They are supervised by slightly more experienced senior auditors who unfortunately depend on feedback from these inexperienced kids in making informed decisions.

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Auditors have the responsibility to identify both fraud and errors. Auditors signed off on financial reports to outside directors and allowed the issuance of financial statements before the fiscal year audit was completed and backed into the numbers.

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The inventory turnover differential also might have drawn a red flag. Each of those three vendors reported significant discrepancies in amounts they claimed that Crazy Eddie owed them due to our issuance of phony charge backs to vendors in the form of debit memos. The debit memos made it easy for us to issue phony charge-backs to vendors, which helped us inflate our income. Meanwhile, Eddie Antar pleaded guilty to one federal charge of Antar was named as a defendant in several law- racketeering and publicly admitted, for the suits, including a large civil suit filed by the SEC first time, that he had defrauded investors by and a criminal indictment filed by a U. Crazy Eddie Goes. Failure to conduct proper test counts of inventories by relying on company staff to count boxes and allowing company staff to take possession of test counts to make copies on behalf of auditors. Despite the advertising barrage intended Copyright Cengage Learning, Inc.

Antar blanketed this region with raucous, sometimes annoying, but always memorable radio and television commercials. Failure to simultaneously observe inventory counts in all locations. This was a domino effect because accounts payable was understated and profits and gross profit majorly overstated to meet investors expectations.

In later years, when he needed someone to serve in an executive capacity in his company, Antar nearly always tapped a family member, although the individual seldom had the appropriate training or experience 1.

Crazy eddie auditors

Both external audit firms Penn and Horowitz in , and Main Hurdman in , noticed that many employees who were previously paid what seemed to be extremely low wages considering their positions and responsibilities had received raises in multiples of 3 to as many as 20 times their previously-reported salaries. Key audit procedures missed In previous years, we had generated an accounts payable aging schedule for our auditors to review. Relate this discussion to Crazy Eddie. Court records documented that Crazy Eddie employees overstated year-end inventory by prepar- ing inventory count sheets for items that did not exist. Failure to conduct sales cut off testing at year end. Essay Topic: Auditing Sorry, but copying text is forbidden on this website! We wanted to raise new capital to fund the opening of new stores while keeping the stock price high. Law enforcement authorities recovered retailer of consumer electronics. Therefore, the inflation of income had to be applied to fourth quarter earnings. Small CPA firm that conducted Crazy Eddie audits before then big eight firm took over audits had a significant revenue base from Crazy Eddie. Meanwhile, I took certain higher level PMM auditors to pick-up bars and other establishments frequented by good-looking women. The Antars did not unload any of their stock in the IPO. In other words, the firm is charging a fee below the marginal cost of the audit. Working papers from prior years may provide some additional insight about the entity and its industry.

The debit memos made it easy for us to issue phony charge-backs to vendors, which helped us inflate our income. Positive sides of hiring the individual who formerly served as independent auditor: - Efficiency and effectiveness of this individual.

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This plan worked every year. For the been convicted or have pleaded guilty to fraud next two years, Antar eluded federal authorities charges, including Sam E. Therefore, the inflation of income had to be applied to fourth quarter earnings. Failure to follow through on analytical test issues. Fraudulently increasing the value of inventories and fraudulently decreasing liabilities such as accounts payable inflates reported income or understates reported losses. Our auditors simply traced the phony debit memos to the books and records that reflected them, but did not do any follow up work to confirm their validity. Question 1. Failure to ask proper questions to the concerned persons. PMM staffer: That is correct. Individual deposits in transit extremely high in relation to normal amounts at fiscal year end.

On the top of that subsequent event should be investigated. Morality, ethics and justice are for the other guys — the victims.

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We reasoned that with Crazy Eddie as a public company, we could unload our stock at inflated prices on unsuspecting victims. Compute key ratios and other financial measures for Crazy Eddie during the period — That level of knowledge should enable him to obtain an understanding of the events, transactions, and practices that may have a significant effect on the financial statements. Understated Accounts Payable to Inflate Reported Profits Accounts Payable Cut-off Fraud — Inventory that was received by Crazy Eddie before the end of the accounting period was invoiced by suppliers and reflected as shipped to the company in the subsequent accounting period. PMM staffer: Yes, it is. Inventories in many individual stores were in excess of space capacity. Lack of professional skepticism. My female employees had distracted them from their tasks, and they were then rushing to complete their audits. Failure to conduct sales cut off testing at year end. I think that it is important for people in public accounting to make the transition into the private sector, I am do not think it would be in anyone best interest for the that person to make the switch to go work for a former client. Get Essay Eddie Antar, the CEO of the company who was the mastermind in the fraud, was skimming money from sales taxes that he only partially remitted to the government, while using part of the money to give steep discounts to customers. In addition to that auditors should randomly select charges included in AP account and check the support documentation to confirm existence of the charges.

Discuss the pros and cons of this practice. Rather than overtly interfering, I engaged in a calculated plan to subtly distract them with cute Crazy Eddie employees reporting to me. How can this practice potentially affect the quality of independent audit services?

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(DOC) 1 8 Crazy Eddie