Annual reoccurring losses due to small margins put pressure on the CFO and controller to divide the overall loss …show more content…
One of the reasons that Phar-Mor was able to commit such a substantial amount of fraud for as long as it did was its business model was highly unique and perhaps not well understood. The more “complex” a company is, and the harder it is to understand, the easier it will be for said company to commit fraud.
The CFO, accounting manager, and controller were all presented with “opportunities” to perpetrate the fraud, simply due to the fact that the president himself instructed them to misstate the financial statements, or simply “go along with it.” However, it was the lack of internal controls that provided the opportunity for the president to initiate the fraud in the first place.
As noted in Appendix A of AU 316, the “risk factors reflective of attitudes/rationalizations by board members, management, or employees, that allow them to engage in and/or justify fraudulent financial reporting, may not be susceptible to observation by the auditor. Nevertheless, the auditor who becomes aware of the existence of