Just for Feet Ppt

Topics: Audit, Fraud, Retailing Pages: 12 (2141 words) Published: February 20, 2013
Knapp Case 1.2 JUST for FEET



Case 1.2 JUST for FEET
Presented by: Amanda Fung Jason Li Joseph Tam Peggy Wong

 Harold Ruttenberg, a native of Johannesburg, paid for his

college education by working nights and weekends. He began selling Levi’s jeans from his car  At his 30, he owned a small chain of men’s apparel stores  Mid 1970s, he and his family moved to California due to political

and economic troubles in his home country. Successfully, he established himself in the retailing industry  He moved once again to Alabama, a more affordable business

environment, and opened a retail store that marketed children’s sportswear products

 Harold realized there was more market in sports shoes. In 1988,

 By 1992, Just for Feet owned and operated five

he opened the first “JUST FOR FEET” in a mall and developed an unique business strategy focusing on “SELECTION”, “SERVICES” and “ENTERTAINMENT” a) SELECTION: Several mini-stores within a large retail outlets and display different branded products in a section. This planned floor design provides Vendor Allowance to his stores for competition between brand names. b) SERVICES: His stores hired large ratio of sales associates with knowledge in “footwear technology” and with skilled interaction with customers c) ENTERAINMENT: Stores plays Rock and Roll music with frequent promotional events and customers can play game of “horse” on a basketball half-court located near the store entrance

superstores. He also sold franchise rights for other stores and acquired several small competitors  By the end of 1997, his company reported a profit of

$13.9 million on sales of $250 million. By 1998, Just for Feet was the second largest athletic shoe retailed in US with 300 retail stores


Knapp Case 1.2 JUST for FEET


Overview of Occupational Frauds

Initial Suspicion
Deliberate violation of GAAP
 In 1995, it was revealed that Just for feet had accumulated

to asset accounts that were amortized over twelve month period in respect to “store opening” cost. According to GAAP, such costs must be expensed within the month that a new store opened costs urged company management to adopt the industry convention and resulted in $2.1 million cumulative effect of a change in accounting principle during fiscal 1996 style as they adopted accounting timing difference to make fraudulent statements

 Criticism of Just for Feet’s accounting for store opening

 High control risks may resulted by aggressive management

Initial Suspicion
Disposal of large part of shares
 In the summer of 1996, Harold (CEO) and his family

 In 1999, Just for feet’s financial and liquidity problems

members disposed off a large part of their common stock worth $49.5 million. However, Harold still continued to give positive projections about the future prospects of the company interests if he has confident with Co’ future prospects

started to come out
Month of 1999 April April May July November Events

 It is unlikely that a major shareholder will dispose their

Selling $200 million of high-yield bonds to cover the liquidity problem Issued an earnings warning Default on its first interest payment on the $200 million of bonds issued in April Harold unexpectedly resigned as CEO Investors and creditors file bankruptcy protection


Knapp Case 1.2 JUST for FEET


 At the end of 1999, Just for Feet’s startling collapse

Based on the findings and released documents by SEC, Just for Feet falsified its financial statements by  1) Improperly recognizing unearned and

over a period of few months sparked a flurry of lawsuits against the company and its executives  Allegations of financial

fictitious receivables from its vendors
 

mismanagement and accounting irregularities triggered investigations of

the company’s financial affairs by...
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