Wedtech Scandal

Only available on StudyMode
  • Download(s) : 76
  • Published : April 14, 2013
Open Document
Text Preview
Auditing failure is also a key factor contributing to the Wedtech scandal. It is presented as a result of independence of auditing reporting and confirmation.On the one hand, even if auditors complied with auditing process on the surface (Berg and barbanel, 1987), they are not independent since they were bribed to forge auditing reports.In 1982, Wedtech employed the Main Hurdman to financially audit its financial statementswhen it went to Initial Public Offerings. One of the auditing partners, Richard Bluestinefound a serious fact in auditing that two directors had transiting company’s money to their private accounts. However, he accepted a bribe from the two directors, which includes 9% of company’s shares and $900,000 low interest loans. Furthermore, Anthony Guariglia , the other auditing partner,was also bribed with 1.5% shares and a job position in Wedtech with high payment. In return, both of them covered up their financial crimes in the report and reported to SBA that the invoice falsification was only a minor infringe to the law and had been corrected by the managers.On the other hand, the legal confirmation of the auditing statement lacked independence,as the law firm named Ellenoff, Plesent& Lehrer, who issued this confirmation letter, was bribed by Wedtech (Deleon, 1993). Hence it is highly probable that the letter of confirmation was not reliable.

Then, Wedtech replaced its external auditor withTouche Ross in 1985. In the same year, Touche Ross issued an unqualified opinion on Wedtech’s financial statements, relied on the formalreport made by Main Hurdman (Berg and Barbanel, 1987), while the company seriously manipulated its financial statement to overstate its earnings (Barbanel, 1987). In this way, it seems that Touche Ross did not audit properly. However, it is reasonable for Touche Ross to rely on the former auditor’s opinion and try to simplify the auditing process to minimize cost. Therefore, it should blame auditing failure on the first...