After a hostile take over of Crazy Eddie Inc, by Victor Palmieri and Ellias Zinna after conducting a company-wide physical check of inventory they realized that many of the warehouses was empty and that the assets of the firm was largely overstated. There was a $65 million overstatement in inventory accounts payable and profit was inflated. This ultimately led to the company to file for bankruptcy and regulatory agencies such as the Federal Bureau of Investigation (FBI), the Security and Exchange Commission (SEC) the United State Postal Inspector Office on the hunt for Eddie Antar and started investigating his company for securities fraud. Throughout the life of the company Crazy Eddie Inc. was audited by 4 accounting firms, at first Crazy Eddie had a local accounting firm before went public. He …show more content…
Main Hurman was both the company's auditor and consultant. They charged a significantly lower price than other auditing firm to charge to do the same job (they lowballed to get Crazy Eddie Inc. as their client). They had a conflict of interest and their independence was compromise. Many of Main Hurman staff later was hired at Crazy Eddie as accountants, because of this it was more easier for them to continually conceal the company's fraud scheme. Because of their familiarity with the client little examination and questioning was done, they trusted their client and little to non skepticism was used. If a new audit or someone who is not familiar with company comes to audit, the auditor is more likely to do more work, be more skeptic and do more testing both substantial and analytical. They would have gathered more supporting evidence and take a closer look at internal control of the entity and discovered how unreliable and inefficient it was. There was a major issue of collusion in this case that why their schemes and tactics was able to go undetected for so long. Eddie and his workers worked as a team to commit the
When it comes to the audit objectives, the public and the auditing profession maintain varying expectations. The public expects the prevention of fraud to be the auditor’s responsibility. However, the auditors believe that they are responsible for fraud detection, but not obliged to find all of it. In addition, the public views the fraud by the characteristics displayed by management and employees. For example, WoolEx Mills’ management wanted to exude a prevailing financial position and to uphold reputations. By committing financial statement fraud, it made the company look successful even though Sales and cash flows were decreasing. The public would view these particular characteristics as pressures to why the company committed fraud. Greed, recognition, and influences also impacted the public’s view of Wool Ex Mills’ fraud scheme. The CEO used authority to influence employees to take part in the fraud scheme. The public would see that the CEO utilized power to manipulate shareholders, which impacted their trust with WoolEx Mills (Cohen, Ding, Lesage, & Stolowy 2015) (Krishnan & Shah
Phar-Mor Inc. was able to cover losses with the help of what they consider "bucket account". They moved all fraudulent activities through this account, because they knew that the auditors will not look at any accounts that have a zero balance.
As what it came to be as one of the notorious case of fraud in the mid-1980s; the electronic store well known as (Crazy Eddie), its owner Eddie Antar and CFO Sam Antar committed every possible act fraud there is. Just to mention two of which they perpetrated; tax evasion and securities fraud. Basically, the tax evasion was committed for many years, it was not until the company became public in 1984 that their wrong doing near its end. Once Crazy Eddie went public, a new set of rules took place, such as compliance with the Securities Exchange Commission and the scrutiny of its investors. Soon, they both realized that their long committed fraud was nearing its end, when an external audit found the real numbers on the company’s inventory, revenues,
Take into consideration the auditors from Arthur Andersen. They did not take into consideration the greatest good for the greatest number of people. The auditors from Arthur Andersen took into consideration the consequences only for their own firm and their own well-being. Vinson & Elkins lawyers should not have destroyed evidence in order to protect their client Enron. Lawyers do take an oath to help protect and defend their client but they are not to help find ways for their client to violate the
The CFO, Andrew Fastow, systematically falsified there earnings by moving company losses off book and only reporting earnings, which led to Enron’s bankruptcy. Any safeguards or mechanisms that were in place to catch unethical behavior were thrown out the window when the corporate culture became a situation where every person was looking out for their own best interests. There were a select few employees that tried to get in front of the unethical accounting practices, but they were pushed aside and silenced. The corporate culture at Enron became a place where if an employee would not make unethical decisions then they would be terminated and the next person that would make those unethical decisions would replace them. Enron executives had no conscience or they would have cared for the people they ended up hurting. At one time, Enron probably was a growing company that had potential to make a difference, but because their lack of social responsibility and their excessive greed the company became known for the negative affects it had on society rather than the potential positive ones it could have had. Enron’s coercive power created fear amongst the employees, which created a corporate culture that drove everyone to make unethical decisions and eventually led to the downfall and bankruptcy of
Profits were inflated by $1.7 billion to meet earnings targets which resulted in investors losing more than six billion dollars while the perpetuators made their illegal loot. The officers were engaged in improper accounting practices to achieve their selfish objectives. These practices included among others: excluding depreciation charges on their garbage trucks, extending their useful lives, capitalized operating expenses and failed to make provisions to pay income tax and other expenses. In addition, Arthur Andersen, has been appointed auditor for a considerable period and issued unqualified audit opinions on accounts which contained many fraudulent
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Not even one person with an ethical understanding of business was found from the accountants, lawyers or auditors to prevent such enormous fraud. They did a variety of immoral actions, which they thought would stay undercover, but led to the bankruptcy of Enron. The executives overindulged in stealing money from their shareholders. They couldn’t stop, and they gambled Enron for couple of years. Arthur Andersen, which was supposed to be one of the most prestigious and important independent auditor companies, checked the books which were obviously incorrect and hide that fact in hope to save their big
Nathan Mueller’s employer, ReliaStar was acquired by the large insurance company ING in 2000. Mueller had a deep understanding of accounting systems and was in charge of transitioning his old employer to the new ERP system. Mueller learned “all aspects of the ERP system including financial reporting, journal entries, and most importantly, checks and wire payment processing” (“Lessons Learned,” 2014). Mueller was an accounting manager of the reinsurance division at one of ING’s offices. He stole almost $8.5 million in a little over four years. Mueller’s department at ING was the reinsurance division, which gave him the ability to approve company checks of up to $250,000. He embezzled this significant amount of money from his employer by requesting
The accountants in this case who faced ethical dilemmas were Russell Smith, Cardillo’s controller, Helen Shepherd, Touche Ross audit partner, Roger Shlonsky, KMG audit partner, and audit subordinates of both Shepherd and Shlonsky. First, Smith received a request from the company’s attorney, Riley, to sign an affidavit regarding the nature of a transaction with United Airlines, which he knew to be recorded incorrectly. Russell was aware that signing this affidavid would result in a misrepresentation of Cardillo’s revenue. Each of the auditors faced ethical dilemmas when pressured by key executives of Cardillo, including the COO, CEO and vice president of finance, to accept the adjusting entry as booked correctly. Without further investigation of this transaction, the auditors would have violated professional standards of integrity and ethical requirements if they had accepted Cardillo’s explanations for the “secret” transaction with United Airlines.
Thirteen years ago, the biggest energy company in the world experienced the biggest accounting scandal of the century. The company was called Enron and was doing very well in business but unfortunately, after many bad decisions were made by the executives of the company, Enron went bankrupt. The executives of Enron were essentially gamblers in the stock market. They took terrible risks and misreported their financial standings in order to encourage people to invest in their stocks. When the stocks crashed in 2001, these people fell victim to the lies and misleading information that Enron reported. Finally, Enron had reached the point of no return and was bankrupt. Arthur Andersen was a company that had a significant role in Enron’s collapse.
The scandal was mainly contributed by the CEO’s concern with analyst’s expectations. During that time, the CEO focus was to ensure that the analyst gave the firm positive reviews that would have improved the firm’s stock performance in the market. Who were the involved parties? The CEO and the founder Harold Ruttenberg, his son and vice president of new store development, Doan Allen Ruttenberg, Deloitte and Touché engagement partner, Steven H. Barry, CPA, the audit manager, Karen T. Baker and colluding executives from vendor companies were the parties involved in this fraud.
Profits were inflated by $1.7 billion to meet earnings targets which resulted in investors losing more than six billion dollars while the perpetuators made their illegal loot. The officers were engaged in improper accounting practices to achieve their selfish objectives. These practices included among others: excluding depreciation charges on their garbage trucks, extending their useful lives, capitalized operating expenses and failed to make provisions to pay income tax and other expenses. In addition, Arthur Andersen, has been appointed auditor for a considerable period and issued unqualified audit opinions on accounts which contained many fraudulent
Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger pointing and placing blame, but both companies contributed to one of the most notorious accounting scandals in history. There remains much speculation as to what steps could and should have been taken to protect innocent victims and numerous investors from experiencing the enormous loses that resulted from this scandal.
Moreover, the auditors had looked out the attitude or rationalisation of the company to justify the fraudulent action. The top management may behalf on their own interest but not the behalf of shareholders to maintain or raise the stock price of the company. In Cendant case, the CUC’s management allegedly inflated earnings by recording increasing revenue and reducing expense to meet expectation.