Case 4.6. Phar-Mor Inc.

|Case 4.6 |
|Instructional Notes |
| |
|Phar-Mor, Inc.: |
|Accounting Fraud, Litigation, |
|and Auditor Liability |
| |
|Mark S. Beasley, Frank A. Buckless, |
|Steven M. Glover, Douglas F. Prawitt |
|( |

INSTRUCTIONAL OBJECTIVES

• To illustrate the degree of legal exposure professional accountants face. • To define auditors’ legal liability under common and statutory law. • To demonstrate that massive fraud typically involves collusion of a number of individuals in the management team. Further, those involved in the fraud will go to extreme lengths to fool the auditors only to later attempt to use their independent auditors as scapegoats when material errors or irregularities are discovered. • To illustrate the potential independence problems that