Essay about Leslie Fay Case

663 Words Oct 4th, 2011 3 Pages
The Leslie Fay Companies Knapp Case 1. The financial statement items that I believe should have been particular interest to BDO Seidman are the inventory primarily and then the sales. BDO Seidman should have noticed that according the ratios, the sales were at a steady rate until the year 1991. The inventory of the company was also having issues with sales due to Leslie Fay not keeping up with the latest fashions and because of a slight recession. According to the ratios and common size statement, the current ratio’s trend was similar to the quick ratio which was constantly declining until 1991. 2. In addition to exhibits one and two, other financial info that the auditor might have obtained was one, the company’s …show more content…
He also had the employees (his subordinates) exactly where he wanted. The beginning of the case explains how Polishan deliberately wanted the company to operate in his best interest. First off, no one individual should be in charge of all accounting and financial reporting of a company. When planning the audit, something that the company should take into consideration is that it is obvious that there was no suitable separation of duties due to one person primarily being in charge of those two important functions. Another thing to remember is that Polishan had no one to question his work, neither his authority because of how everyone already vulnerably followed his rules. It is also the responsibility of management to adhere to internal controls of the organization. This shows that the company suffered from weak internal controls. One other thing that the company should consider while planning the audit is to get a clear understanding of the company’s internal controls to actually figure out how Polishan manipulated the financials. A company with weak internal controls is more prone to fraudulent activities just as what had happened in the Leslie Fay Case.

5. There were multiple red flags that were obvious in this case. The SEC ruled that BDO Seidman's independence was jeopardized because the auditors were irresponsible in auditing and paying attention to the red flags that were shown in the company’s financial statements. In the