Crazy Eddie

1931 Words Sep 11th, 2010 8 Pages
Crazy Eddie, Inc.
Common Size Balance Sheets March 1, 1987 March 1, 1986 March 1, 1985 May 31, 1984
Cash 3.17% 10.47% 33.99% 3.76%
Short-term investments 41.36% 21.14% 0.00% 0.00%
Receivables 3.68% 1.77% 4.18% 7.12%
Merchandise inventories 36.99% 47.16% 40.51% 63.83%
Prepaid expenses 3.61% 1.86% 0.98% 1.41% Total current assets 88.81% 82.40% 79.66% 76.12% Restricted cash 0.00% 2.64% 10.77% 0.00%
Due from affiliates 0.00% 0.00% 0.00% 15.69%
Property, plant and equipment 8.95% 5.65% 5.64% 5.05%
Construction in process 0.00% 4.93% 1.76% 0.00%
Other assets 2.24% 4.38% 2.17% 3.14% Total assets 100.00% 100.00% 100.00% 100.00%

Crazy Eddie, Inc.
Common Size Income Statements Year Ended
March 1, 1987 Year
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In 1984 Crazy Eddie was able to collect on account in 53 days and this number skyrockets to 117 in 1986. This show the inability for the company to collect the debt owed to them which is also reflected in the downward trend of cash. Extremely high accounts receivable turnover rates are an indicator of credit and collection policies that are too restrictive. The fact that the Antar family had absolute control over the operations was a red flag as well. Eddie Antar knew that if he kept the company controlled by family members that they would remain loyal. They were able to manipulate all aspects of the company. There were “major self-dealing transactions and related party transactions by family members” (Antar, S)
The audit procedures that an auditor is supposed to perform are there to help protect from fraud that may occur. The falsification of inventory count sheets could have been prevented if the auditor would have verified the information that was on the sheets. Crazy Eddie executives were excellent at staying one step ahead of the auditor because they knew in advance which stores the auditors would visit, then they would ship merchandise to those specific stores.
The bogus debit memos should have been authenticated by contacted some of the vendors of Crazy Eddie’s and asking for supporting documentation. “Unfortunately for the CPA, it is too easy for the client to conceal

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