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Sunbeam: Case 3.4

In: Business and Management

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Case #3.4 – Sunbeam – Incentives and Pressure to Commit Fraud

I. Technical Audit Guidance

To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm.

II. Recommended Technical Knowledge

PCAOB Auditing Standard No. 5

Paragraph #9
Paragraph #11
Paragraphs #29-30
Paragraph #32
Paragraph #A8 (in Appendix A)

III. Classroom Hints

This case provides students with an opportunity to apply their technical knowledge about inherent risk and fraud risk to Sunbeam's business model during the 1990's. By providing details about Sunbeam business during this time, students are able to see the relationship between an audit client's business strategy and inherent risk assessment at the financial statement assertion level. In addition, this case provides students with an opportunity to think about fraud risk assessment during times of significant change at an audit client. To meet these objectives, this case illuminates a number of relevant issues about the development of Sunbeam. In particular, the case focuses on the changes that occurred at Sunbeam after hiring Albert J. Dunlap as its chairman and CEO in 1996.
We believe it is essential for students to carefully read over the recommended technical knowledge, along with this case reading. The educational psychology literature suggests that the acquisition of technical/factual type knowledge increases dramatically when such knowledge can be applied in a realistic context. Thus, we urge instructors to use this case as a...

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