Crazy Eddie, Inc

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Jun 1,2009
Crazy Eddie, Inc.

Crazy Eddie Inc. was a retail consumer electronics store in New York City. By 1987, Crazy Eddie Inc. had 43 retail outlets, sales exceeding $350million, and outstanding stock with a collective market value of $600 million. Doubling in the four-year period from 1981 to 1984, sales in the consumer electronics industry exploded. Eddie Antar, the owner of the Crazy Eddie, Inc. converted his stores into consumer electronics supermarkets. Antar stocked the shelves of Crazy Eddie's retail outlets with every electronic gadget he could find and with as many different brands of those products as possible. Compute key ratios for period 1984-1987 Inventory turnover 4.58 3.9 3.25 2.5The Inventory turnover rate steadily declines from 1984-87, which could indicate, lost sales. Misstatements of inventory or cost of goods sold could be possible. It also indicates employee strikes or, in Crazy Eddies' case, employees leaving their jobs. In 1986 the A/R turnover rate was extremely high which is unusual because in that year the consumer electronics industry boom days had ended. Competition in the New York area was high. Inventory turnover rates had been decreasing. How was Crazy Eddie receiving all this money if sales were down? Extremely high A/R turnover rates are and indicator of credit and collection policies that are too restrictive.

"Where were the auditors?" was a question posed repeatedly by investors, creditors, and other interested parties when the public learned of the Crazy Eddie fraud. Being an auditor, to identify specific audit procedures that might have let to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: 1) Visit the stores without prior acknowledgement of it and check the inventory in place to detect the falsification of inventory count sheets. 2) Contact the vendors, suppliers, creditors, etc. to verify that payment information or check their IRS records to detect the bogus debit...
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