Phar-Mor Case Study

To begin the audit, a review of previous 2 years of financial statements, provided by current or previous auditors for any unusual business transactions relating to revenue.

nearly $260 billion in sales, managed over 5,000 stores in 10 countries, and employed over 1.5 million

Since 1962 and the beginning of the discount retailer market Wal-Mart has been ahead of the retail game. By 1967 there were 24 Wal-Marts that had grossed 12.6 million dollars. In just 7 years Wal-mart had spread into 9 states. By 1979 Wal-Mart was the fastest store to reach a billion dollars in sales. In 2005 Wal-Mart has 3,800 domestic stores along with 3,800 stores internationally, and had made over 312 billion dollars. As you can see the Wal-Mart empire has grown monumentally. To move into this segment of the market would be tough.

Levin and Goldberg quickly shot down Gilmore’s idea of adding a footnote about the warehouse arrangement where South City Electronics would ship their goods to Kelly Electronics who would then sell it to Victor Systems, while South City recognized revenue immediately. Not disclosing this arrangement would be in direct violation of AICPA’s Code of Professional Conduct. Levin even told Gilmore himself that the footnote would create doubt in the public and wonder what accounting practices they are partaking in. With this being said, this would violate the public trust principle. This principle states that South City has a responsibility to the public to serve them honestly, and to carry out their duties with integrity and objectivity. If they go through with this warehouse arrangement and add the footnote, the public would wonder what other manipulative accounting practices they use to meet their earning goals. If they don’t add the footnote, they would be violating AICPA’s Code of Professional Conduct integrity and objectivity rule, which states that a member can not knowingly misrepresent facts to the public. This warehouse arrangement would allow South City to record a $1.2 million sale early, before the goods have reached the final customer, Victor Systems which violates SEC and FASB

I agree with you, when you state that the first red flag was the fact that the check was postdated. In their lines of business, there should have been policies in place that would have protected them from unnecessary losses. I personally feel that the following policies are necessary.

Elder, A. A., Beasley, M., & Elder, R. J. (2014). Auditing and assurance services (15th ed.). Upper Saddle River, NJ: Pearson.

Arens, A. A., Elder, R. J., & Beasley, M. S. (2013). Auditing and Assurance Services. Old Tappan, NJ: Pearson Education.

This memo is regarding Hamilton Corporation and the fraud that occurred. When people make decisions they don’t always do it with the right mindset. There are limitations in our judgment processes and we can identify methods to mitigate bias and improve judgment (KPMG Judgment Framework). The four common tendencies that cause limitations in our judgment processes are, availability, confirmation, overconfidence, and anchoring. In this memo I will explain each of the four tendencies, talk about which tendency I believe to have manifested in the Hamilton case, clarify issues relating to auditing the warranty reserve and describe the alternatives that should be considered in auditing the warranty reserve, and finally provide factors that

1971 to over 800 stores located in 46 states and Puerto Rico. This industry is

* Bo and Mo explicitly say that they do not want Kevin to cut down on the work he does.

What happened: Millions of dollars in losses were split among the 129 stores and put as an expense on each stores balance sheet ->. In order to balance the expenses, management had to boost its assets by inflating inventory -> The auditor Coopers&Lybrant checked only 4 stores out of 129 in order to safe their money. In addition, they told senior management which stores they will check -> Phar-Mor prepared the inventory in accordance with its balance sheet -> The auditing firm was unable to uncover the fraud.

The company began in 1971 in Seattle, Washington with one retail store and it grew to over 2,600 stores in 13 countries by the early 2000’s (Schultz, 2011). They now have operations and retails stores in more than 50 countries around the world (Harrer, 2011).

in that event, the clerk was supposed to tell me that the clerk related to new sales generated by the ceo and that all was under control. as a matter of fact, the customers in question haven 't placed any kind of orders with our company and no goods have been shipped to them. because we aren not company, our external auditor has not performed any kind of interim review of the interim financial statements."

They could just do the audit of the account payables and say that it only took the

As of Feb 28, 2014, the company had approx. 10,000 employees & 246 retail stores in 20 countries. The company has business in the United States, Canada, Mexico, Brazil, United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Israel, Australia, Japan, South Korea, and China. The company also operates an e-commerce website with 12 different localized online stores across the world.