Koss Corporation
1.0 INTRODUCTION
The stereo headphone industry is created by John C. Koss in 1958 with his first stereo headphone. Koss Corp. was incorporated in 1971 in Milwaukee, Wisconsin and manufactures stereo headphones, speaker phones, computer headsets, telecom headsets, noise reducing headsets, and wireless headsets. Koss Corp. went public in 1965 at $5 per share. Over the last ten years, its stock price has ranged from $8 in July 2002, to its peak at $15 in July 2006 to its low at $4 in July 2010. It currently trades at approximately $5.50 per share.The Chief Executive Officer (CEO), Michael J. Koss, the founder’s son, and his family directly or indirectly own in excess of 70 percent of the company’s 851,000 shares. A $34 million embezzlement of cash from the Koss Corp. occurred over a 12 year period from 1997 through December 2009. The Koss Corp. received an unqualified opinion on its financial statements as of June 30, 2009 and 2008 (as well as in prior years) by a Big Five auditing firm. The audit did include consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Koss’s internal control over financial reporting. The Company maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and that the book and records reflect the authorized transactions of the Company. Oversight of management’s financial reporting and internal accounting control responsibilities are exercised by the Board of Directors, through an Audit Committee that is comprised solely of independent directors. The SEC on October 24, 2011 filed a Complaint against, and proposedsettlement with, Koss Corporationand Michael J. Koss, its CEO and former CFO, based on Koss Corporation’s preparation of materially inaccurate financial statements, book and records, and lack of adequate internal controls
The stereo headphone industry is created by John C. Koss in 1958 with his first stereo headphone. Koss Corp. was incorporated in 1971 in Milwaukee, Wisconsin and manufactures stereo headphones, speaker phones, computer headsets, telecom headsets, noise reducing headsets, and wireless headsets. Koss Corp. went public in 1965 at $5 per share. Over the last ten years, its stock price has ranged from $8 in July 2002, to its peak at $15 in July 2006 to its low at $4 in July 2010. It currently trades at approximately $5.50 per share.The Chief Executive Officer (CEO), Michael J. Koss, the founder’s son, and his family directly or indirectly own in excess of 70 percent of the company’s 851,000 shares. A $34 million embezzlement of cash from the Koss Corp. occurred over a 12 year period from 1997 through December 2009. The Koss Corp. received an unqualified opinion on its financial statements as of June 30, 2009 and 2008 (as well as in prior years) by a Big Five auditing firm. The audit did include consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Koss’s internal control over financial reporting. The Company maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and that the book and records reflect the authorized transactions of the Company. Oversight of management’s financial reporting and internal accounting control responsibilities are exercised by the Board of Directors, through an Audit Committee that is comprised solely of independent directors. The SEC on October 24, 2011 filed a Complaint against, and proposedsettlement with, Koss Corporationand Michael J. Koss, its CEO and former CFO, based on Koss Corporation’s preparation of materially inaccurate financial statements, book and records, and lack of adequate internal controls
References: 1) Joseph A. Gerard PhD CPA Curt M. Weber JD. 2014. How Agency Theory Informs a $30 Million Fraud. Journal of Finance, Accounting and Management, 5(1), 16-47. 2) Annoy. 2010. Koss: Unauthorized transactions increased over years. Bussiness journal. 3) Small company suffers massive embezzlements. 2010. 4) Koss Executive Accused of Embezzling Company Funds to Pay Off Shopping Spree. 2009. 6) Expert in Koss Case Blames Michael Koss and Management for Fraud. 2013.