Auditing Case Essay

604 Words Mar 11th, 2016 3 Pages
Keith Parkinson
2/3/15
Auditing

Case 1: Merry-Go-Round

Merry-Go-Round (MGR) is a clothing retailer that was founded in 1968. The company’s locations were in malls that targeted the youth and teen market. In the late 1980s, the company was listed by Forbes magazine as one of the top 25 companies. By the early 1990s, sales fell due to stiff competition from other retailers. Facing bankruptcy, the company hired turnaround specialists from Ernst and Young (E&Y) to help overcome the financial crisis. However, the company filed for Chapter 11 reorganization and due to that a group of 9,000 creditors filed a lawsuit against E&Y saying they were the main reason for MGR’s decline. First of all, E&Y violated GAAS first standard
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Overall, I just think having a set of standards would keep a professional manner. Finally, we need to know if E&Y acted ethically throughout this engagement. E&Y had a close relationship with Rouse Co., one of MGR’s landlords. E&Y was soliciting business from Rouse and provided significant tax services. Also, Swidler and E&Y had participated in at least 12 different business arrangements, some of which resulted in Swidler receiving significant fees from E&Y. I think these relationships had a direct affect on E&Y’s advice to MGR. I think E&Y acted unethically because they didn’t keep independent which is a violation of GAAS. I think it was clearly unethical on E&Y’s part because they didn’t disclose any of this information with MGR. So, I purposely think E&Y worked together with Swidler to increase the fees because Swidler was the one that referred MGR to E&Y. To conclude, consulting advisors for E&Y could have conducted business with MGR in a more of a professional manner, especially when disclosing relationships. I also think MGR could have done a better job and looked into E&Y first before hiring them. In the end, I think E&Y was more at fault just because they were unethical about the entire situation and purposely hid information trying to help them

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