Auditing Negligence
Response to the following :
A few years ago, the officers of Phar-Mor, a discount retail chain, were convicted of issuing fraudulent financial statements. It was learned at the trial that the company overstated its inventory by moving inventory from store to store and counting the same inventory several times. For example, a case of Coca-Cola would be counted at one store and then moved to another store and counted again. In a separate civil trial, Phar-Mor's auditors were accused of performing negligent audits because they didn't catch these inventory movements.
Do you believe that the external auditors were negligent in this case?