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Koss Corporation: Analytics Part A, D & E Case Solution & Answer

Koss Corporation: Analytics Part A, D & E Case Solution 

II. Analytics

Part A

The comparison between the fraud period’s income statement figures to a similar period of the restated figures, shows that the annual amount stolen was significantly related to the shareholder’s equity as well as the company’s sales. For instance: the amount stolen by Sachdeva was approximately $8.5 million during the fiscal year 2009, while the company reported the total sales of 41.7 million dollars with an inclusion of the retained earnings of 17.1 million dollars at the year-end. Additionally, the change between the two years’ actual figures shows that the net sales of the company have increased by 0.093 percent from the 2009’s actual to restated figures,but, the net income of the company has reduced by -1.130 percent from the actual figure to the restated figure of 2009. Additionally, the actual and restated figures of net income for the years 2007 and 2008 have also reduced.

There seems to be unusual trends in the income statement items of the company,because the company has reported the total sales of 41.7 million dollars, while Sachdeva has stolen approximately $8.5 million during the fiscal year 2009 with an inclusion of the retained earnings of 17.1 million dollars, at the year’s end.

Additionally, the trend of the net sales, net income and retained earnings are highly affected by the fraud. Furthermore, the account receivables, cost of sales and administrative expenses are overstated and so is the cash, because of the unauthorized transactions.(10-K/A, 2009).

Part D

1)Before the restatement of the accounts in the income statement and balance sheet; the company’s management was confident in establishing and maintaining effective internal controls within the organization. In other words, the company’s management believed that the internal control system was-effective and it was reducing the possibility of fraud and was helping to protect the assets. Furthermore, the management of the company also believed that the company’s financial statements are prepared in conformity with the US accounting principles, under the circumstances as well as necessarily included amounts that are based on best judgments and estimates.(Kukreja, 2016).

  1. After the restatement of the accounts in the income statement and balance sheet, the management of the company was still reported that due to the inherent limitations in all control systems, no assessment and evaluation of the control could provide absolute assurance that instances of fraud and control issues have been detected within an organization.
  2. In the wake of the fraudulent event followed by the materially inaccurate audited financial statements and discovering the embezzlement; it is identified that there was a lack of adequate internal control systems and the financial statements were not prepared in conformity with the US accounting principles. The difference between the two comments posed by the company’s management shows that the management had failed in adequately maintaining the internal control to reasonably assure the reliability and the accuracy of the financial reporting. Furthermore,it was the responsibility of the company’s top management to evaluate the planning and budgeting procedures of the company. Moreover, the management was also responsible to evaluate the quality of the internal control systems, which tended to last greater impacts over the quality of the company’s financial statements. The management of any public limited company is highly responsible for establishing & maintaining an adequate internal control system over the financial reporting, such as: asset’s safeguarding.

2) The board of directors as well as the management of the company appeared to be unconcerned regarding the risk management, effective internal control system and wrongly assumed that they can trust their senior executive staff. The company’s management also claimed that the company didn’t have any effective and adequate systems of internal control for the fiscal year, ending June 30th, 2009, and June 20th, 2008, and had concluded that due to the inherent limitation in the company’s control system, such as:judgment, breakdowns, management override and collusion; the evaluation of control didn’t provide the absolute assurance related to the control issues…………………….

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