Operation Analysis

Mckesson & Robbins

In this case, the auditor did not observe the counting of inventory, instead, the auditors supported inventory through written representation. The auditor should check and confirm receivables with customers of the division.

, auditors generally did not observe the counting of inventory. Instead auditors supported

inventory value through written representation

In this case, the

examining accountants accepted information from within McKesson & Robbins rather than confirming receivables

with customers of the crude drug division

led to changes in audit procedures (observing inventory, confirming accounts receivable made standard procedure in accounting profession).

3

It is hard for investors and people involved in the transaction to see what is happening if the boss use complex off-balance sheet transaction, special purpose entities, And manipulated financial statements so that investors wouldn't understand the truth about what was happening in the bowels of his companies.

8 Equity Funding would use the fake profits to maintain the share price and the hope was that one day it would be able to buy a major life insurance company and then "go straight." Equity Funding's books were loaded with fake bonds and CDs, but when questions arose, the accountants trusted the explanations of company officials. Remember, it was 1973 and computers weren't in use anywhere near what they are today, so at times the auditors accepted handwritten lists as proof various positions existed. Employees involved in the scam also created computer printouts and paper files during late-night parties after receiving a specific auditor request. And all this time that Equity Funding deceived the auditors, the analysts on Wall Street and various insurance industry watchdogs were taken in as well.

The Equity Funding scandal was a massive scheme, concocted by management and supported on at least a passive basis by a number of employees who knew, or could have reasonably suspected, that something was wrong. Obviously, the participants, and those who knew about their activities, had little integrity and poor ethical values