Ashley Paige Hudson
May 11, 2014 ACCT525
Week 1 Assignment
The Phar-Mor case relates to a marked accounting fraud and collusion by management officials that finally surfaced in 1992, after several years of falsified inventory records and financial reports. Phar-Mor, Inc. was a private retail company that was growing attention and market share in the mid 1980’s. This chain of discount drugstores grew to 310 stores in in 34 states before investor losses reached $500 million and they declared bankruptcy. In this cover-up scandal management maintained fictitious gross sales and inventory levels that created an illusion of success. The top executives at Phar-Mor that were responsible for this scheme ended up confessing to financial statement fraud and the company was fined over $1 million. The company’s former president Michael Menus was found guilty on over 100 counts of a federal indictment charges of fraud, embezzlement and tax evasion. The company’s independent audit firm, Coopers & Lybrand LLP, were sued and charged with recklessly issuing an audit opinion. There audits lacked important elements of a random, thorough and reasonable material testing process. There are were numerous gaps in auditing standards and procedures, professional conduct and due diligence. (Williams, 2011). The Waste Management scandal emerged in 1997and the whistle was blown by the company’s newly hired chief executive officer. He came in requesting an evaluation of the company’s accounting records and found usual accounting transgressions. This Houston-based public waste management company then faces a historic restatement of earnings from 1992 to 1997 and this led to further investigation of accounting fraud. At this time, this was the largest corporate restatement in history and one of the most conspicuous executive accounting scandals seen by the Securities Exchange Commission (SEC). Management had deliberately inflated earnings to meet target...
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