Phar-Mor Inc Essay

1771 Words Aug 9th, 2013 8 Pages
Assignment 1: Phar-Mor Inc
By: Rich Allen
SID: 250421110
Date: July 18th, 2013
Prof: M. TeKare

1a). A company would want to hire a member of its external audit for a number of reasons. The external auditor would have extensive knowledge of how the company works due to analyzing statements and performing many audit procedures and tests on the company and therefore would reduce time in order to become effective as an employee. The company would know the former auditor personally and have a good idea of how they would fit in with the existing staff. The former auditor could prepare working papers and assist with the auditors to reduce the time and cost of the audit. However, the former external auditor would know what the existing
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The client is the one that is initiating the contract between the two parties. The client has the power to fire the auditor at any time if they are not satisfied with the auditor’s service. For example in the Phar-Mor case, if Coopers had issued a qualified report or exposed the irregularities the accounting firm would have been fired, thereby reducing revenue in the accounting firm, and a new firm would have been hired. In the case, the auditing partner was said to be hungry for business due to the fact that in the past he had been passed over for additional profit sharing. He was motivated not to lose existing customers as well as acquiring new business. For example, in the audit partner acquired 23 clients directly from Mickey Monus, the CEO of Phar-Mor, who were all either family members or friends. The audit partner would have been motivated to give an unqualified opinion to Phar-Mor in order not to jeopardize professional services provided to family and friends of Monus in the amount of $900,000.

2b). There are several measures that the profession has taken to reduce the potential consequences of this power imbalance. Accounting acts passed by legislature, especially the Sarbanes-Oxley act, have enforced much harsher penalties on companies who intentionally misstate their financial statements. The PCAOB, a regulatory authority, sets quality control and ethical standards with respect to the issuance of

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