Us Surgical Fraud
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1. Some of the procedures that United States surgical corporation should have employed would have been helpful in detecting the overstatement of the leased and loaned assets are as follows.
1)Ernst & Whinney should have reviewed USSCs policies for disposing and retiring capital assets
2) Ernst & Whinney when planning their audit should have devised testing methods and determined how many samples would be required to get an accurate read. The tests should determine whether the assets retirement was done on a timely basis and whether it followed the proper approval procedures. Additionally the tests should determine whether the asset was removed from the general ledger.
2. United States Surgical Corporation extended the useful life of some of its fixed assets and implemented salvage values for the first time ever. There are situations where this can be within the guidelines of GAAP. However in order to change the salvage values and extend the assets life the must be supporting evidence to justify the change. In this case the changes were made arbitrarily they should have been included in a notes on the financial statements. Ernst & Whinney should have issued a Qualified Financial Report Based on the arbitrary nature of the changes.
U.S. Surgical Corporation
Consolidated Balance Sheets 1979-1981 (000s Omitted)
December 31,
Current Assets:
$ 426
$ 1,243
$ 596
Receivables (Net)
36,670
30,475
22,557
Inventories:
Finished Goods
29,216
9,860
5,685
Work In Process
5,105
2,667
1,153
Raw Materials
20,948
18,806
7,365
55,269
31,333
14,203
Other Current Assets
7,914
1,567
1,820
Total Current Assets
100,279
64,618
39,176
Property, Plant, And Equipment:
2,502
2,371
1,027
Buildings
32,416
18,511
13,019
Molds and Dies
32,082
15,963
8,777
Machinery and Equipment
40,227
23,762
12,362
107,227
60,607
35,185
Allowance For Depreciation
(14,953)
(9,964)
(6,340)
92,274
50,643
28,845
Other Assets
14,786
3,842
2,499
Total Assets
$ 207,339
$ 119,103
$ 70,520
Current Liabilities:
Accounts Payable
$ 12,278
$ 6,951
$ 6,271
Notes Payable
–
–
1,596
Income Taxes Payable
–
1,685
–
Current Portion of Long-
Term Debt
724
666
401
Accrued Expenses
5,673
5,130
5,145
Total Current Liabilities
18,675
14,432
13,413
Long-Term Debt
80,642
47,569
33,497
Deferred Income Taxes
7,466
2,956
1,384
Stockholders Equity:
Common Stock
1,081
930
379
Additional Paid-in Capital
72,594
34,932
10,736
Retained Earnings
32,665
20,881
13,189
Translation Allowance
(1,086)
–
–
Deferred Compensation – from
Issuance of Restricted Stock
(4,698)
(2,597)
(2,078)
Total Stockholders Equity
100,556
54,146
22,226
Total Liabilities and
Stockholders Equity
$ 207,339
$ 119,103
$ 70,520
U.S. Surgical Corporation
Consolidated Income Statements 1979-1981 (000s Omitted)
December 31,
Net Sales
$ 111,800
$ 86,214
$ 60,876
Costs and Expenses:
Cost of Products Sold
47,983
32,300
25,659
Selling, General, and
Administrative *
45,015
37,740
23,935
Interest