Us Surgical Fraud

1. Some of the procedures that United States surgical corporation should have employed would have been helpful in detecting the overstatement of the leased and loaned assets are as follows.

1)Ernst & Whinney should have reviewed USSC's policies for disposing and retiring capital assets

2) Ernst & Whinney when planning their audit should have devised testing methods and determined how many samples would be required to get an accurate read. The tests should determine whether the assets retirement was done on a timely basis and whether it followed the proper approval procedures. Additionally the tests should determine whether the asset was removed from the general ledger.

2. United States Surgical Corporation extended the useful life of some of its fixed assets and implemented salvage values for the first time ever. There are situations where this can be within the guidelines of GAAP. However in order to change the salvage values and extend the assets life the must be supporting evidence to justify the change. In this case the changes were made arbitrarily they should have been included in a notes on the financial statements. Ernst & Whinney should have issued a Qualified Financial Report Based on the arbitrary nature of the changes.

3.

U.S. Surgical Corporation

Consolidated Balance Sheets 1979-1981 (000s Omitted)

December 31,

1981 1980 1979

Current Assets:

Cash $ 426 $ 1,243 $ 596

Receivables (Net) 36,670 30,475 22,557

Inventories:

Finished Goods 29,216 9,860 5,685

Work In Process 5,105 2,667 1,153

Raw Materials 20,948 18,806 7,365

55,269 31,333 14,203

Other Current Assets 7,914 1,567 1,820

Total Current Assets 100,279 64,618 39,176

Property, Plant, And Equipment:

Land 2,502 2,371 1,027

Buildings 32,416 18,511 13,019

Molds and Dies 32,082 15,963 8,777

Machinery and Equipment 40,227 23,762 12,362

107,227 60,607 35,185

Allowance For Depreciation (14,953) (9,964) (6,340)

92,274 50,643 28,845

Other Assets 14,786 3,842 2,499

Total Assets $ 207,339 $ 119,103 $ 70,520

Current Liabilities:

Accounts Payable $ 12,278 $ 6,951 $ 6,271

Notes Payable - - 1,596

Income Taxes Payable - 1,685 -

Current Portion of Long-

Term Debt 724 666 401

Accrued Expenses 5,673 5,130 5,145

Total Current Liabilities 18,675 14,432 13,413

Long-Term Debt 80,642 47,569 33,497

Deferred Income Taxes 7,466 2,956 1,384

Stockholders' Equity:

Common Stock 1,081 930 379

Additional Paid-in Capital 72,594 34,932 10,736

Retained Earnings 32,665 20,881 13,189

Translation Allowance (1,086) - -

Deferred Compensation - from

Issuance of Restricted Stock (4,698) (2,597) (2,078)

Total Stockholders' Equity 100,556 54,146 22,226

Total Liabilities and

Stockholders' Equity $ 207,339 $ 119,103 $ 70,520

U.S. Surgical Corporation

Consolidated Income Statements 1979-1981 (000s Omitted)

December 31,

1981 1980 1979

Net Sales $ 111,800 $ 86,214 $ 60,876

Costs and Expenses:

Cost of Products Sold 47,983 32,300 25,659

Selling, General, and

Administrative * 45,015 37,740 23,935

Interest