Crazy Eddie Case

             1. Compute key ratios for period 1984-1987
             Inventory turnover 4.58 3.9 3.25 2.5
             The Inventory turnover rate steadily declines from 1984-87, which could indicate, lost sales. Misstatements of inventory or cost of goods sold could be possible. It also indicates employee strikes or, in Crazy Eddies' case, employees leaving their jobs.
             In 1986 the A/R turnover rate was extremely high which is unusual because in that year the consumer electronics industry boom days had ended. Competition in the New York area was high. Inventory turnover rates had been decreasing. How was Crazy Eddie receiving all this money if sales were down? Extremely high A/R turnover rates are and indicator of credit and collection policies that are too restrictive.
             2. a) Falsification of inventory count sheets (reperformance)
             A corrective internal control measure to establish existence includes tracing backward items in the inventory to vendor's invoices to the receiving reports and paid checks.
             b) Bogus debit memos for accounts payable (confirmation)
             Confirm notes payable with banks and creditors, then trace information in the confirmation replies to the general ledger.
             c) Recording of transshipping transactions as retail sales (Observation)
             View recorded sales from authorized shipping and approve customer orders and send monthly statements to customers. Segregate duties between handling cash and record keeping and independent reconciliation of bank accounts. This provides separate, independent verification of the cash receipts and enhances proper application of such receipts to the appropriate accounts
             d) Inclusion of consigned merchandise in year-end inventory (documentation)
             Use of an adequate chart of accounts and in
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