Crazy Eddie
Crazy Eddie
Tables of Contents
Issues…………………………………………………………………………………………………………….III-V
Facts..…………………………………………………………………………………………………………….VI-IX
Analysis…………………………………………………………………………………………………………X
Recommendations………………….…………………………………………………..………………….XI
References.…………………………………………………………………………………………………….XII
Issue
1) Red flags were the increase on short-term investment receivables why would an electronic company have short-term investments in the first place. Increase of prepaid inventory in 1987 should be alarm nearly double from 1986. The company gross profit margin was stable of around 13%-16% average there was no need to increase inventory prepaid. Also lack of accounts payable and account receivable was a sign every retail company should have bad debt expense or allowance for doubtful accounts as customers may commit fraud to purchase products. The inventory age of went from 80 in 1986 to 111 in 1987 yet cost of goods sold primarily consisted of inventory was average from 1984 to 1987
2) Several audit procedures could have been performed to attest Crazy Eddie wrong doing A) The falsifying inventory count sheet would be detected if the auditors randomly performed inventory count and compare it to the Crazy Eddie sheet and consulted with inventory experts of how companies can deceive auditors. B) Bogus email could been investigated by requesting back support documentation to support the memos and also if this was mentioned during executive meetings by reviewing the executive board minutes. Also by contacting the vendor and reconciling their receivables to payables of Crazy Eddie. C) Transhipping sales would have been by reviewing account receivable process from start to finish. Review payment of the sale invoices and checking shipping department log of when transshipment was done and of course contact the buyer to authenticate the sale to place.
D)
Tables of Contents
Issues…………………………………………………………………………………………………………….III-V
Facts..…………………………………………………………………………………………………………….VI-IX
Analysis…………………………………………………………………………………………………………X
Recommendations………………….…………………………………………………..………………….XI
References.…………………………………………………………………………………………………….XII
Issue
1) Red flags were the increase on short-term investment receivables why would an electronic company have short-term investments in the first place. Increase of prepaid inventory in 1987 should be alarm nearly double from 1986. The company gross profit margin was stable of around 13%-16% average there was no need to increase inventory prepaid. Also lack of accounts payable and account receivable was a sign every retail company should have bad debt expense or allowance for doubtful accounts as customers may commit fraud to purchase products. The inventory age of went from 80 in 1986 to 111 in 1987 yet cost of goods sold primarily consisted of inventory was average from 1984 to 1987
2) Several audit procedures could have been performed to attest Crazy Eddie wrong doing A) The falsifying inventory count sheet would be detected if the auditors randomly performed inventory count and compare it to the Crazy Eddie sheet and consulted with inventory experts of how companies can deceive auditors. B) Bogus email could been investigated by requesting back support documentation to support the memos and also if this was mentioned during executive meetings by reviewing the executive board minutes. Also by contacting the vendor and reconciling their receivables to payables of Crazy Eddie. C) Transhipping sales would have been by reviewing account receivable process from start to finish. Review payment of the sale invoices and checking shipping department log of when transshipment was done and of course contact the buyer to authenticate the sale to place.
D)
References: Sarbanes Oxley Section 404 Internal Control Practitioners Statement on Auditing Standards 69 The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles Statement on Auditing Standards 99 Consideration of Fraud in a Financial Statement Audit Statement on Auditing Standards 109 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement Statement on Auditing Standards 115 Communicating Internal Control Related Matters Identified in an Audit