Phar Mor Case Summary

explanatory Essay
1164 words
1164 words

The Case of Phar-Mor Inc. Phar-Mor Inc. was incorporated in 1982 as a deep discount drug store chain. The chain has grown from seventy stores in 1987 to 310 by 1992, with 25,000 employees in 34 states. Phar- Mor- was engaged in creative accounting practices: inventory was overstated as proper inventory records were not maintained to support inventory purchases; $15 million was embezzled from Phar-Mor to support WBL activities and over $200,000 were used for upgrades to his personal residence and meals to his country club. As the losses mounted, the losses were charged to what senior staff referred to a “bucket account” and were then reallocated to the inventory of the existing stores. The senior …show more content…

It therefore means that if the audit partner was on the job at the initiation of the fraud in 1989, he would have been rotated off and a new partner appointed. It is common practice for auditors to use the very methodology that applied by their predecessors and this approach would not have identified the frauds. In addition the amount of work done by auditors depends largely on the budget which could impact on the quality of the …show more content…

Profits were inflated by $1.7 billion to meet earnings targets which resulted in investors losing more than six billion dollars while the perpetuators made their illegal loot. The officers were engaged in improper accounting practices to achieve their selfish objectives. These practices included among others: excluding depreciation charges on their garbage trucks, extending their useful lives, capitalized operating expenses and failed to make provisions to pay income tax and other expenses. In addition, Arthur Andersen, has been appointed auditor for a considerable period and issued unqualified audit opinions on accounts which contained many fraudulent

In this essay, the author

  • Explains that phar-mor inc. was incorporated in 1982 as a deep discount drug store chain, with 25,000 employees in 34 states.
  • Explains that the senior officers were all former employees of the cooper & lybrand accounting firm who were familiar with the audit process.
  • Explains that the introduction of sarbanes oxley 02 could not have prevented phar fraud in a post sox environment.
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