Molex Inc. designs, manufactures, and distributes electronic connectors that are used by a variety of industries. Despite being a successful company, Molex experienced some downfall in 2002 and 2003. Demand for their products sunk and their financial performance declined. This occurred around the same time as the accounting scandal with Enron happened. Then, in 2004, Molex ended up having an inventory error that was caught by Diane Bullock, CFO and brought to attention to Joe King, CEO. The following case analyzes the inventory error, the external auditors’ opinion, and what the board should do about the problem.
The Need for External Auditors
Most importantly, because Molex is a publicly traded company on NASDAQ, it is a requirement that they have an external audit done. If the company did not produce audited financial statements the company would not meet exchange listing requirements and there would be a chance of NASDAQ pulling their stock off the market.
The issue of independence is another reason why companies choose to have an external audit done. Independence refers to when different employees perform different tasks within a specific department. We will use the accounts receivable section of the accounting department as an example. For independence to occur, a company would want to have separate employees collecting cheques and/or cash, preparing the deposit, and actually depositing the cheques and/or cash. For some companies, usually smaller ones,