Crazy Eddie Case

A detailed Summary of Crazy Eddie Case

1. Compute key ratios for period 1984-1987

Inventory turnover 4.58 3.9 3.25 2.5

The 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.

2. a) Falsification of inventory count sheets (reperformance)

A corrective internal control measure to establish existence

d) Inclusion of consigned merchandise in year-end inventory (documentation)

Tolerable misstatement for each account can not exceed:

b) Bogus debit memos for accounts payable (confirmation)

Total misstatement $7,570,800

4. Lowballing means soliciting services far below generally accepted market price too stave off competitor's bid for the same services to perspective clients. The scope of the audit would not be reflective and narrow in this situation. The audit might also be understaffed because due to the inability to charge over stated rate in engagement. Also there might not be enough money to do thorough and proper procedures in the audit.

Some common words found in the essay are:
Crazy Eddie, Observation View, Lack Independence, Extremely A/R, , Flags Inventory, Crazy Eddies', Assets Cash, Retained Earnings, Prepaid Expenses, a/r turnover, inventory turnover, acceptable audit risk, acceptable audit, audit risk, reports paid checks, consumer electronics, turnover rates, electronics industry, crazy eddie, turnover rate, consumer electronics industry, inventory vendor's invoices, inventory vendor's, items inventory vendor's,

Approximate Word count = 727
Approximate Pages = 3 (250 words per page double spaced)

Category: Miscellaneous

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