Accounts Case Study: Crazy Eddy Inc.

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Crazy Eddie, Inc.

Table of Contents
Issues ……………………………………………………………………………………… 1 Facts ……………………………………………………………………………………….. 2 Analysis ……………………………………………………………………………………. 3 Conclusions/Recommendations …………………………………………………………… 4 References/Bibliography ……………………………………………………………………5

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 the Crazy Eddie’s financial statements that suggested the firm posed 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 the Crazy Eddie personnel? a) The falsification of inventory count
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What a customer did not know was that Crazy Eddies prices on most of its products were the same prices as those of its major competitors. By 1983 Eddie Antar decided to sell Crazy Eddies stock to raise capital to finance his aggressive expansion. Do to procedures the company’s underwriting firm retained which was hired by Antar, delayed Crazy Eddies IPO for more than a year due to discovering the mess in the company’s financial records. In the middle of other problems uncovered by the underwriter were “extensive related-party transactions, interest free loans to employees, and speculative investments unrelated to the company’s principal line of business.” In addition, the underwriting firm was also surprised to find that most of the company’s key executives were members of the Antar family. The underwriter warned Antar that investors would question the competence of the company executives due to the fact that they were his relatives. The underwriter also suggested to for Antar to hire a CFO for Crazy Eddie who had experience with a public company. Despite what the underwriter suggested, Antar hired

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