Briefly summarize the key events surrounding the case
The key events surrounding the case of Fred Stern & Company, Inc include the acts that restricted the rights of auditors and plaintiffs making the case really complicated. As such, any company can make a financial statement which contains some errors while the work of auditors is in identifying all misstatements. At the same time, it is important to review the figures and be able to correct the financial statement in case it contains some errors. The company ran by Fred Stern was in the rubber importing business though it could not afford to increase the volumes of imported goods due to lack of capital. As such, it needed a loan to obtain which could improve its business. The decade when the company operated was full of frauds and lack of restrictions and legal regulations in liabilities and auditing was apparent.
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At the same time, the number of frauds who operated well-performing companies was not large. In this respect, small companies were more likely to employ people who turned out to be frauds or to deal with frauds. So, the company ran by Fred Stern used the Touche auditing company as an independent auditor for several years due to good reputation of the latter. As such, the key events surrounding the case include the level of fraud and the limitations in auditing responsibility when the auditing company bears responsibility for misstatements and inappropriate information. The opportunity for fraud could be used by any individual who was involved in business or worked for an auditing company.
Briefly summarize the key auditing topic (example, ethical conduct, independence, legal liabilities to foreseeable users, etc); relevant issues to the Auditing
The case is based on such key auditing topic as professional issues in auditing including unethical behavior and negligence as well as attempts of fraud. As the case is confusing, it was important to identify the fault of the auditors and the company that made an incorrect financial statement. At the same time, the legal liabilities to foreseeable users can be listed as key topic related to the case in terms of auditing issues.
The unprofessional and unethical behavior can be considered synonymous because a professional is aware of the ethical code and should follow it. As such, it was necessary for the auditors to report about the discrepancies between the results of auditing and the sheet prepared for financial statement. The thing is that the auditing company was aware of the Stern’s intent to get a loan from a larger company and a bank without knowing that financial balance sheets would be provided at request.
The inappropriate figures indicated in the balance sheet were received after one of the auditors for Stern’s company added a few entries falsifying the balance sheet for Stern to obtain the loan whereas the financial conditions of the company were not too promising.
In this respect, the unethical behavior when a representative of the auditing company falsifies the entries in the customer’s balance sheet as well as an attempts to misinform the stakeholders about the financial conditions of the company are key issues related to auditing activities. Actually, it was not clear whether the auditing company was an independent auditor provided that they were aware of Stern’s plan to obtain a loan and falsified the balance sheet to help the company.