Question

1. After an auditing firm signed off on Acme’s financial statements, Acme’s CFO and thehead of its sales department were indicted for falsely reporting sales and earnings over a three-year period by creating phony invoices on non-existent sales. Acme’s CEO and chairman professed ignorance of the scheme and fired the CFO and head of sales once the scheme became known.
   1. Do you believe these three groups knew of the fraud?

      Acme’s CEO _________________

      Acme’s Board of Directors ______________

      External auditors __________________________

   2. Using a seven-point scale (1=no responsibility; 7=complete responsibility), rate how much responsibility did these parties have to uncover the fraud.

      Acme’s CEO ________________________

      Acme’s Board of Directors _________________

      External auditors __________________

   3. On which side would you support in a lawsuit for professional negligence brought by investors against Acme’s accountants?

Answer 1

I believe that Acme's CEO, External Auditors and Board of direcotrs were aware of the fraud as the fraud was going on since three years and obivously the top management would be aware of the same and as far as the external auditors are concerned they might not be aware about the fraud in the initial year but later when they came to knew they would be protecting the same from getting revealed because of the threat of losing client and self-review threat.

The following is the scale of responsibility for following persons :

1)Acme'CEO- 7-full responsibility

2)Acme's Board of Directors-7-Full Responsibility

3)External Auditors

In a lawsuit brought for professional negligence, I would support investors.