Help for Prof. Cherny's Auditing Assignment regarding Audit Failures

I spoke with Prof. Julius Cherny about the assignments given his class regarding cases in which audit failures have occurred. (The 12 cases are in Contemporary Auditing: Real Issues and Cases by Michael C. Knapp. Prof. Cherny gave me a copy of the book and I have placed it on reserve.) I also prepared a guide, which he will post on his course Blackboard site, to resources that students may find helpful. I have placed print copies of this guide in the drawer here at the desk in a folder labeled Cherny's Audit Failure Guide.

The cases are: Enron, Livent, Inc., (which files both in the U.S. and Canada, and has been operating under bankruptcy protection), Health Management, Inc. (HMI), AMRE, Inc., Leslie Fay Companies, Star Technologies, Inc., Lincoln Savings & Loan Association, Crazy Eddie, Inc., ZZZZ Best Company, Inc., ESM Government Securities, Inc., United States Surgical Corporation, and The Fund of Funds, Ltd.

Of the 12 cases, two are probably more work than the others to find financial information. The first, EMS Government Securities, Inc., was a wholly-owned subsidiary of ESM Group, Inc. They were dealers in government securities, of which the SEC had no regulatory authority at the time (mid 1970s-early 1980s.) Oversight rested with state security agencies. However, the text book shows a balance sheet the company prepared in 1984 as customers requested an audited balance sheet. The failure of EMS was a large one, and the textbook mentions a book about the scandal, Bankers, Builders, Knaves and Thieves, which the library owns. The failure was also the subject of a Congressional hearing, also mentioned in the textbook, and we have print copies of this hearing. The CCH Business & Finance database, as well as Accounting Research Manager, may be searched for Accounting and Auditing Enforcement releases regarding this case, as well as others.

The other case that might be difficult to find complete financial filings for is Investors Overseas Services, (IOS), a mutual fund, which was headquartered in Geneva, Switzerland, and the initial time period is mid 1960s. Again, the SEC actions against Bernard Cornfeld and others may be located in CCH Business & Finance and Accounting Research Manager, and Westlaw and Lexis-Nexis will have the court decisions in lawsuits. There was litigation against the auditors and the Newman Library has the book written about Cornfeld. And, news accounts would provide information. (The litigation in this case went into the 1980s.)

So, with some work, the students should be able to find enough information for the assignment, which Prof. Cherny said is more about "lessons learned" (what the auditor did or didn't do) than locating the financials.

Please let me know if you have any questions.