Case 4.6. Phar-Mor Inc.

8093 Words33 Pages
|Case 4.6 |
|Instructional Notes |
| |
|Phar-Mor, Inc.: |
|Accounting Fraud, Litigation, |
|and Auditor Liability
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The landlord then called David Shapira, CEO. • After the fraud was uncovered, Phar-Mor laid off more than 16,000 employees, closed 200 stores, and filed for bankruptcy. • Phar-Mor emerged from Chapter 11 in 1995, its common stock traded on NASDAQ, and it in 2001 it operated 139 stores in 24 states under the names Phar-Mor Rx Place, and Pharmhouse. However, on September 24, 2001, Phar-Mor filed again for Chapter 11 bankruptcy to restructure their operations in an effort to return to profitability. Phar-Mor’s securities have been delisted from the NASDAQ. • In late 1995, Coopers & Lybrand, LLP settled with Phar-Mor as well an many investors and creditors banks who together were seeking in excess of $1 billion (the terms were not disclosed). Several investors and creditors did not settle at that time and in February 1996, a federal jury found Coopers guilty of having a “knowing or reckless disregard for material problems in the condition of Phar-Mor,” which is paramount to fraud. The student case indicates only that the auditors were found liable, it does not specify that the plaintiffs had to prove fraud to be successful.


Relevant professional standards for this assignment include AU Section 230, “Due Professional Care in Performance of Work,” AU Section 316, “Consideration of Fraud in a Financial Statement Audit,” AU 319, “Consideration of Internal Control in a Financial Statement Audit.”


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