Essay about Case 4.6 Phar-Mor, Inc.

618 WordsOct 3, 20133 Pages
2. A) A client can be put in a more powerful position than the auditor in an auditor-client relationship if the auditor is trying to sell the client additional services. B) According to SOX external auditors are prohibited from providing certain services to clients: book keeping or other things related to the accounting records or financial statements of the audit client, they are not allowed to design and implement financial information, appraisal or evaluation services, internal audit outsourcing services, investment banking services, legal services and expert services unrelated to the audit. 3. A) If I were put in this situation as an equity investor, I would absolutely pursue legal actions against the auditors. If there was a…show more content…
5. Although they were created just a year apart from one another, but there are still some big differences between the Securities Act of 1933 and the Securities Act of 1944. Under the Securities Act of 1933 the auditors are responsible for providing due diligence. Auditors are able to avoid the liability if they can demonstrate the due diligence. Under the Securities Act of 1934, it is the public companies who are required to file annual audited financial statements with the SEC. Also, the burden of proof belongs to the third party to prove the existence of someone who’s intent to deceive, manipulate or knowingly reckless. 7. A) Factors that would have contributed to a high inherent risk assessment of Phar-Mor Inc. include their excessive growth in a highly competitive market, the motivation from management to maintain that growth, rapid expansion, results from previous audits, their involvement with related parties, inventory being their biggest account, and the random behavior of Phar-Mor’s founder and COO. B) I think the auditors should have equal responsibility for detecting material misstatements due to error and fraud. It’s their job to make sure the financial statements are as accurate as possible. Although it may be hard to check all the information from a company it’s the responsibility of the auditor to sign off that everything is in check. C) Phar-Mor created an environment conducive for fraud, because of many things. First

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