Class 15 Integrating Values w/ Actions in the Workplace Flashcards
What was the financial reporting problem at Molex?
CEO and CFO failed to disclose an $8 million pre-tax inventory valuation error
What did the original auditors think Molex should do to correct the financial reporting problem?
Book the entire $8 million up front
What did the CFO think Molex should do to correct the financial reporting problem?
Bleed it in over the four quarters
What factors do you think influenced management’s decision not to raise the issue with auditors?
Booking the error would have cause Molex to miss analyst expectations
Why were Molex’s auditors so concerned about the reporting problem at Molex?
- AA engagement partner
- AA senior manager
- Both just saw firm collapse b/c auditors were caving into clients
Did the BOD agree with the external auditor’s concerns?
- BOD though Deloitte was overreacting
- BOD didn’t want anything to do w/ the matter and told auditors to deal with it on own
How did the Molex BOD respond to Deloitte’s request that the CFO (and possibly the CEO) be replaced?
- Replaced Deloitte with EY
Why was Deloitte hesitant to act in the beginning?
- Molex = top 25 audit client
- Losing a top 25 audit client would have a financial ripple effect on the firm
Was the $8 million error material?
- Yes
- Material b/c it would cause company to miss analyst expectations if entire $8 million booked up front
Did the CFO eventually book the $8 million?
- Yes
- “Adjustments” booked but bottom line didn’t change at all
After the investigation, what did Deloitte decide to do?
Walk
What did EY do before taking Molex on as a client?
- Conversed w/ Deloitte (that Deloitte would walk from really profitable audit raises a red flag)
- Asked that CFO be replaced
- Asked that audit committee find a financial expert
