Answer the following questions. Each response should be at least one page
QUESTION 1
A course on fraud examination just wouldn't be complete without discussing Enron! Let's turn to the first case study for Chapter 12 regarding Enron. After reading the case, answer one of the following questions:
What important internal controls were ignored when LJM1 was created?
How might Enron's harsh Performance Review Committee (PRC) have aided company executives in committing this fraud?
The fraud at Enron is one of many major financial statement frauds that occurred in recent years (Qwest, Global Crossing, WorldCom, etc.). What are some factors that could explain why the falsifying of financial statements is occurring so frequently?
QUESTION 2
Let's try analyzing financial statement information for possible fraud symptoms at the Tool Co. (Case 7 at the end of Chapter 12).
Tool Co. is a medium-sized company that buys copper rod and plastic materials to produce insulated copper wiring. Tool Co. operates out of a single building of about 500,000 square feet that includes office space (3%), production area (57%), shipping and receiving (15%), and finished goods and raw materials inventory warehousing (25%). The information gathered about the company's inventories and performance is included for you in the text.
From the information provided in the text, how would you go about looking for red flags? Do you think there are any red flags of possible fraud present in 2010? Why or why not?