Fraud Case Study: Bausch And Lomb

The source of problem for Bausch and Lomb was the chief executive, Daniel Gill. Gill created great pressure for the employees of B&L to generate revenue. He wanted to increase sales at any cost. In regards to the audit risk model, the inherent risk was very high. The reasoning behind the risk was due to the measures taken by the chief executive to improve sales. The only way to generate sales to please Gill however was by recognizing revenue that was not recognizable. On the other hand, control risk was relatively low. However, the controls were not ineffective, rather it was from the results of the actions from the people in power. Due to the high inherent risk and the low detection risk, the detection risk would need to be low. Low detection risk would result in testing more items. By testing more items, the audit team can have assurance over the sales and whether if they occurred or not. Due to the audit risk, there are specific areas the audit team should focus on. To begin, the control environment was not stable. Gill lacked integrity and ethical values. His main agenda was benefitting himself, rather than focusing on what was best for the company. The way management was able to better the company was by ensuring they looked profitable, even if they company was not gaining any revenue. As Gill began to gain more …show more content…
B&L did not have adequate documentation in regards to their sales or contracts with the distributors. Distributors stated that B&L made verbal agreements with them. The verbal agreements were that if they did not sell the inventory, they could return it at no cost. There was improper transaction classification because at year-end, the sending of supplies to distributors was classified as revenue (even though it was not revenue at all). The articles go into detail to state B&L “lost” documents or did not recall events, when asked by the