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Crazy Eddie

In: Business and Management

Submitted By NaniBrito
Words 3216
Pages 13
Table of Contents

Issues............................................................................................................1
Facts.............................................................................................................2
Analysis and Law.........................................................................................5
Conclusion/ Recommendations…………………………………….………9

Issues

1. Compute key ratios and other financial measures for Crazy Eddie during the period 1984-1987. Identify and briefly explain the red flags in Crazy Eddie’s financial statements that suggested the firm possess a higher-than-normal level of audit risk.
2. Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: (a) the falsification of inventory count sheets, (b) the bogus debit memos for accounts payable, (c) the recording of transshipping transactions as retail sales, and (d) the inclusion of consigned merchandise in year-end inventory.
3. The retail consumer electronics industry was undergoing rapid and dramatic changes during 1980s. Discuss how changes in an audit client’s industry should affect audit planning decisions. Relate this discussion to Crazy Eddie.
4. Explain what is implied by the term lowballing in an audit context. How can this practice potentially affect the quality of independent audit services?
5. Assume that you were a member of Crazy Eddie audit team in 1986. You were assigned to test the client’s year year-end inventory cutoff procedures. You selected 30 invoices entered in the accounting records near year-end: 15 in the few days prior to the client’s fiscal year-end and 15 in the first few days of the New Year.
(A.) What if the that client personnel were unable to locate 10 of these invoices.
(B.) How should you and your…...

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