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It Is All There

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Submitted By lmontgomery4
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Current Issues in Accounting

The case of Phar-Mor Inc is new to me after coming across a number of scandals and I am excited to do research on it. Phar-Mor Inc is a deep discount drug store that was established in 1982. The business model was to by huge masses of products or alternatively called “power buying” and selling them at a huge discount of 25 to 40% of retail price (Lansing, 2011).
In 2002, the corporation had 310 outlets with 25,000 employees in majority of the states, 34 to be precise.
The problem was first discovered through misleading information concerning reporting inventories. Another problem was through the CEO Monus, who owned at least 60% of the 10 teams of the Worlds Basket Ball Leagues. It is a problem because the CEO was estimated to have embezzled $15 million in the corporation’s assets to support the teams. There are a number of other fraudulent factors involved that have increased the amount of fraud to 500 million!

If SOX was enacted in 1992, then it would have helped in the following manner:
Section 203, Audit Partner Rotation: “The new rules impose more rigorous standards of independence for the external auditors of SEC reporting companies (including foreign private issuers) than under existing SEC rules that existed” at the time of the Phar-Mor Inc scandal( Lansing, 2011 ). This also required more frequent partner rotation off an audit engagement team. If Coopers and Lybrand were not auditing Phar-Mor Inc on a continuous basis, meaning for a period of less than five years then maybe the new auditing partner could have detected the fictitious inventory that existed in other stores. Using the same auditing partner can lead to complacent and conflict of interest.

Another Section that could have helped is Section 206, conflict of interest which states that it is unlawful for a “chief executive officer, controller, chief

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