Full Download Contemporary Auditing Real Issues and Cases 8th Edition Knapp Solutions Manual
Full Download Contemporary Auditing Real Issues and Cases 8th Edition Knapp Solutions Manual
Full Download Contemporary Auditing Real Issues and Cases 8th Edition Knapp Solutions Manual
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CASE 2.1
Synopsis
In the mid-1980s, Emanuel and Fred Greenberg each inherited a 50 percent ownership
interest in a successful wholesale business established and operated for decades by their father.
Philadelphia-based Jack Greenberg, Inc., (JGI) sold food products, principally meat and cheese, to
restaurants and other wholesale customers up and down the eastern seaboard. The company’s largest
product line was imported meat products. Following their father’s death, Emanuel became JGI’s
president, while Fred accepted the title of vice-president. In the latter role, Fred was responsible for
all decisions regarding the company’s imported meat products. When JGI purchased these products,
they were initially charged to a separate inventory account known as Prepaid Inventory, the
company’s largest account. When these products were received weeks or months later, they were
transferred to the Merchandise Inventory account.
In 1986, the Greenberg brothers hired Steve Cohn, a former Coopers & Lybrand employee, to
modernize their company’s archaic accounting system. Cohn successfully updated each segment of
JGI’s accounting system with the exception of the module involving prepaid inventory. Despite
repeated attempts by Cohn to convince Fred Greenberg to “computerize” the prepaid inventory
accounting module, Fred resisted. In fact, Fred had reason to resist since he had been manipulating
JGI’s periodic operating results for several years by overstating its prepaid inventory.
From 1986 through 1994, Grant Thornton audited JGI’s annual financial statements, which
were intended principally for the benefit of the company’s three banks. Grant Thornton, like Steve
Cohn, failed to persuade Fred Greenberg to modernize the prepaid inventory accounting module.
Finally, in 1994, when Fred refused to make certain changes in that module that were mandated by
Grant Thornton, the accounting firm threatened to resign. Shortly thereafter, Fred’s fraudulent
scheme was uncovered. Within six months, JGI was bankrupt and Grant Thornton was facing a
series of allegations filed against it by the company’s bankruptcy trustee. Among these allegations
were charges that the accounting firm had made numerous errors and oversights in auditing JGI’s
Prepaid Inventory account.
92
1. Emanuel and Fred Greenberg became equal partners in Jack Greenberg, Inc., (JGI) following
their father’s death; Emanuel became the company’s president, while Fred assumed the title of vice-
president.
2. JGI was a Philadelphia-based wholesaler of various food products whose largest product line
was imported meat products.
3. Similar to many family-owned businesses, JGI had historically not placed a heavy emphasis on
internal control issues.
4. In 1986, the Greenberg brothers hired Steve Cohn, a former Coopers & Lybrand auditor and
inventory specialist, to serve as JGI’s controller.
5. Cohn implemented a wide range of improvements in JGI’s accounting and control systems;
these improvements included “computerizing” the company’s major accounting modules with the
exception of prepaid inventory—Prepaid Inventory was JGI’s largest and most important account.
6. Since before his father’s death, Fred Greenberg had been responsible for all purchasing,
accounting, control, and business decisions involving the company’s prepaid inventory.
7. Fred stubbornly resisted Cohn’s repeated attempts to modernize the accounting and control
decisions for prepaid inventory.
8. Fred refused to cooperate with Cohn because he had been manipulating JGI’s operating results
for years by systematically overstating the large Prepaid Inventory account.
9. When Grant Thornton, JGI’s independent auditor, threatened to resign if Fred did not make
certain improvements in the prepaid inventory accounting module, Fred’s scheme was discovered.
10. Grant Thornton was ultimately sued by JGI’s bankruptcy trustee; the trustee alleged that the
accounting firm had made critical mistakes in its annual audits of JGI, including relying almost
exclusively on internally-prepared documents to corroborate the company’s prepaid inventory.
94 Case 2.1 Jack Greenberg, Inc.
Instructional Objectives
3. To examine the competence of audit evidence yielded by internally prepared versus externally
prepared client documents.
1. The phrase “audit risk” refers to the likelihood that an auditor “may unknowingly fail to
appropriately qualify his or her opinion on financial statements that are materially misstated” [AU
312.02]. “Inherent risk,” “control risk,” and “detection risk” are the three individual components of
audit risk. Following are brief descriptions of these components that were taken from AU 312
(paragraphs 21 and 24):
Control risk: the risk that a misstatement that could occur in a relevant assertion and that
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CHAPTER XIII
POISONED WORDS
A hundred times a day Myra told herself that she would forget
Guy, that she would tear every tender memory of him from her heart,
and a hundred times a day her heart cried out passionately that
forgetfulness were impossible, since every time she saw him her
hunger for his love grew fiercer. There came a day when she
realised that it was impossible to persuade herself that she might
ever forget, and, when she thus surrendered herself to the bitter-
sweet reflection of the folly of bestowing a love which was
unreturned, she realised also that certainly and surely Guy was
drifting further away from her.
If he had remained under the same roof, she would have been
content for the relationship of brother and sister to endure, but, when
she could no longer watch over his outgoings and incomings, she
became possessed of a devouring desire to know how and where he
spent his time. With a woman's intuition she guessed that he could
not remain fancy free. He was not that type of man. She knew that to
him the feminine complement would inevitably be sought and found.
She had thought that he might have found that complement in her.
When Hora had told her that she had been too near Guy, she had
trusted his knowledge of the world, but after Guy had been living
away from them for a month, and he had shown no alteration in his
demeanour, she told herself that Hora had merely lied to her to
prevent her protesting against a plan which was to place Guy out of
her reach. She thought she saw that plan maturing as the weeks
passed and Guy's visits became fewer and fewer. Hora did not
apparently mind when he only came in for a brief half-hour in the
morning during a whole week, and made that visit merely to
announce that he was going out of town on the following day, and
was uncertain when he would return.
Myra remembered that six months previously he would have
acted very differently. Then any plan formulating in his mind would
have been discussed between all of them, then she would have
known where he was going, and when he might be expected to
return.
She did Lynton Hora an injustice. He was in reality as much
perturbed as herself at the alteration in Guy's demeanour. But he
could await the explanation with more equanimity, since he had
taken steps to discover the reason. He did not for a moment
suppose that Guy's opinions were undergoing any change. Even, as
Myra, he suspected a feminine reason for Guy's reserve on the
subject of his movements. He did not attempt to force a confidence
from the young man; he was far too astute. He had no belief in
confidences that were not volunteered.
Guy was glad that he had not been asked for an explanation as
to his movements. He felt ashamed that he could have accepted an
invitation to the house of his supposed father's enemy. Yet he could
not have resisted the opportunity which would be afforded him of
spending whole days in the sweet companionship of Meriel Challys.
So, after his acceptation of the invitation given him he had stayed
away from Westminster Mansions. He had not thought of Myra at all.
They had been boy and girl together, confidantes, playmates, brother
and sister. The idea of any other relationship had never for a
moment crossed his mind, and when he bade her a careless good-
bye and mechanically kissed her cheek he had not the slightest
suspicion that her heart was in a tumult, that at the faintest
encouragement she would have thrown herself into his arms and
offered her lips.
She gave no indication of the emotion which swayed her then.
But all day she brooded over the coldness of the farewell alone in
her room. Not with tears, the time for that relief was not yet come.
Hora had observed, but said nothing. But when she did not
make her appearance at the dinner-table he went to her room. The
door was locked. He began to be afraid. But she answered to his
knocking that she had a headache and could not eat. He reasoned
with her, and commanded that she should join him at the table. She
was on the point of refusing, but habit was strong. She obeyed his
peremptory request, though sullenly. Hora took no notice of her
mood, while the meal was being served, but when it was over and
Myra rose to leave he rose too and followed her. She went direct
towards her own room. He checked her.
"I must speak to you to-night, Myra," he said. "I have something
important to say to you."
She passed through the door which Hora held open for her
without a word and threw herself into a chair. She anticipated some
reproach, but she was far too miserable to care for reproaches.
Hora was silent awhile after he had entered and seated himself
opposite her. Then he spoke sharply. "What have you been saying or
doing to Guy to drive him away from his home?"
The suddenness, the preposterous nature, of the charge
aroused Myra as nothing else could have done. Her lethargy
vanished. The colour flashed to her cheeks and the light to her eyes,
though surprise tied her tongue so that Hora had time to repeat the
query.
"What have I done to Guy?" she answered. "What do you
mean? Do you think that I—that I—would do anything to send him
away?"
"I can conceive of no other reason why he should have so
deserted his home of late," answered Hora coldly. He was
deliberately provoking a storm, and it burst upon him.
"I am not quite the fool you suppose me to be, Commandatore,"
she cried hotly. "You cannot impose upon me with the shallow
pretence that you think I am responsible for Guy's absence. I am not
blind. I can see plainly enough that your intention has been to get
Guy away and there can only be one motive for your wishing to do
so. You think he can do far better for himself than to mate with a girl
you picked up from the gutter."
"Suppose I have thought so; what then?" asked Hora. "What
cause have you for complaint?"
"None," she answered, her voice full of bitterness. "Save that
you have allowed me to live in a fool's paradise, that you have
encouraged me to believe that one day the impossible might
happen, that you have encouraged me to believe that there was no
one you would so welcome as daughter as myself. I don't know why
you should have instilled such a belief in my mind, Commandatore,
unless you have hated me all the time. You must have done so, and
now you should be glad. You have made me suffer—well, now you
can gloat over the thought."
"Made you suffer, have I?" answered Hora scornfully. "You don't
know what suffering is. The vapourings of a love-sick girl. Bah! I
have no patience with such sentimental bleatings."
Myra rose from her chair, pale now with anger, "And now you
insult me," she cried.
He would have interrupted her, but she overpowered his words
with a torrent of her own. "Oh, you have the right to insult me as you
please; I don't question it. Did you not buy me, as you have told me
often enough, body and soul for a piece of gold and a bottle of gin.
The master cannot insult the slave, you will say. I suppose I ought to
smile at your reproaches, but when you accuse me of having driven
Guy away—it is too much, Commandatore. I cannot bear that
accusation, at least."
She dropped limply into the chair from which she had risen. Her
face fell forward into her hands, and her whole body was shaken
with a storm of sobs.
Hora was silent. He had provoked the storm. He waited for its
subsidence before he broached the subject he had in his mind.
Presently tears came to Myra's relief, the crystal drops broke through
her fingers. She lay back in the chair exhausted by the cyclone of
passion.
"I have something yet to say, Myra," remarked Hora quietly. "I
believe you when you say that you have done nothing to drive Guy
away, but that belief makes it necessary to look for another
explanation. Guy is of the age when there is only one possible
explanation. He is blind to your beauty, Myra; have you any idea as
to any other woman who is likely to have attracted him?"
There was a subtle meaning in Hora's voice which arrested
Myra's wandering attention. She looked up. Tears had reddened her
eyes, a hardness came into her face. She was almost ugly. She
crushed her handkerchief into a ball.
"What do you mean, Commandatore?" she asked. Then, as she
met Hora's eyes, she bent forward to him, "You know something, you
know something." She forced the words from between clenched
teeth.
Hora made no answer, and she continued, "You need not
trouble about breaking it gently, Commandatore. Who is it?"
The Commandatore was unmoved by her emotion.
"I am asking you, Myra. As yet I have only a suspicion. I was
wondering whether you could not give me confirmation."
"Don't play with me any longer, Commandatore," she pleaded. "I
am not a child."
He seemed to be moved by the appeal, for he answered with
animation, "Indeed, Myra, you do me an injustice. I know nothing
certainly, I only suspect; and I am blaming you, Myra, you—for
allowing Guy to be taken from us."
She gazed at him stupidly, while she repeated his words, "You
are blaming me?"
"Yes," he answered, "I am blaming you. You are young, you are
beautiful. Day by day you have been in Guy's company, and yet you
have allowed him to be stolen away from us. If you have not driven
him away, at least you have made no effort to keep him."
Myra was silent. Hora was speaking vehemently and, though
she had learned to doubt his every word, yet it was difficult to doubt
his sincerity now. The man continued:
"You have told me you love. I doubt if you can know the
meaning of the word. Love does not sit with hands folded idly while
the beloved is stolen away. Love fights for existence against all
rivals. It is insistent. It will not be denied. Beauty is its weapon. The
knowledge of the primitive instinct of a man to a maid is a sufficient
education in strategy. Are you such a fool that you did not see that it
was in your power to have kept Guy at your will?"
Myra was forced to protest. "To thrust myself on Guy. To be
repulsed—the shame of it, Commandatore," she answered weakly.
"Bah!" replied Hora. "A man will fight for a woman, and take no
shame in his repulse. Why not a woman for a man? Are you of such
ordinary stuff, such common fustian, that you will tamely stand by
while some milk-and-water chit takes your natural mate from you?
You had better go back to the gutter, if so."
There was scorn in his words, scorn in the tone of his voice, and
if Hora intended to rouse the woman's spirit the words did not fail of
their purpose. Though she winced under the sting of his speech, her
eyes flashed fire again.
"You do me less than justice," she said. "Have I not always been
obedient? You have never bade me please myself. Always it has
been, some day if you are dutiful, Myra, you shall have the chance. I
have waited and waited, and now you have nothing but scorn."
Hora rose, and, passing behind the girl, bent over her chair.
"It may not be too late yet," he said. "You remember when I said
to you that the day might come when I should bid you take Guy's
heart from him, toss it away, trample on it, break it, or store it away
with your trinkets—do with it as you please? That day has come,
Myra." His voice whispered, almost hissed, the latter words in her
ear.
"It is too late," she cried in reply.
"It is not too late," insisted Hora passionately. "Too late is the
excuse of cowardice. Guy will come back. It will be your duty to keep
him, to make him forget all else but yourself."
"But he cares nothing for me," she cried.
"That is your fault," he answered readily. "Heaven! You a woman
and hold yourself so cheaply. Look in the glass and compare what
you see there with the women you meet day by day." His voice
dropped to a whisper again. "Guy's eyes have been closed to your
beauty. Open them. He has yet to learn that a man's will dies when a
woman's arms are around him, and her lips are pressed against his.
Teach him the lesson, Myra, for I tell you that if such a passion as
yours does not awaken a response in his heart, he is much less than
man. You want to know how to make victory certain? Take lesson of
Delilah, but do not let too many opportunities pass. Remember that
once you win him he is won forever. I am on your side."
Myra listened, fascinated by Hora's subtle suggestions. He
ceased speaking and stole softly out of the room. She did not hear
him depart. Her mind was in a tumult. There was joy in the thought
that the Commandatore had at last not merely given her permission
to win Guy, but had urged her to the conquest. There was dread lest
another, the unknown rival, should already have won him. There was
doubt in her mind that she might fail, but that was tempered with a
knowledge of her own beauty. She hastened to her own room and
asked the mirror for information. Yes, beauty of face and form were
both hers. Gladly would she have laid her beauties at Guy's feet, but
to use them to entrap him—a flood of crimson overwhelmed her at
the thought. And yet, rather than another should take him from her,
there was no shame to which she would not cheerfully submit. Even
if Guy should scorn her, she would still have tasted the fierce joy of
possession.
Cunningly had Lynton Hora made use of his knowledge of the
girl's complex nature. He had heaped fuel upon the flames of her
desire, he had artfully suggested that it was within her power to light
an answering flame in Guy's heart. He had taunted her with
cowardice in submitting without effort to a rival's success; he had
even recalled her humble origin to her mind as if he would make it
clear that she could not stoop to conquer. And the poison which he
had dropped in her ear entered into her veins until it filled her whole
being. But Guy did not return.
CHAPTER XIV
THE SHADOW-MAN
The dog days had come and the season was almost moribund
when Captain and Mrs. Marven and Miss Challys left town for their
country house in Essex, where Guy was to join them a week later,
for he had definitely accepted the invitation which had been pressed
upon him.
London seemed empty to Guy with their departure. He had
made it his business in life to meet Meriel, and latterly not a day had
passed without his seeing something of her. If he had not met her
with Mrs. Marven at Raneleigh or Hurlingham or in the Park, he had
been certain to run against Captain Marven in the club, and he had
never refused the Captain's invitation to walk home with him for a
cup of tea. At the opera, at dances, there had always been the
chance of meeting the girl again, and chance had rarely proved
unkind.
But he was not at all easy in his mind. The thought that he had
been accepting the hospitality and the friendship of the man whom
he had robbed of his trust, the man whose hand was given him in
honest friendship, ever haunted him. Yet the desire to be with Meriel
at all hazards overpowered his scruples. He made excuses for
himself at first, and, when he perceived that he was trying to cheat
himself, the half-formed resolution arose in his mind to so order his
life in future as to square it with Meriel's ideals. He realised that it
would not be difficult for him to do so, that a life of conventional
morality meant a life of ease, as compared with an existence ordered
on the lines of Hora's criminal philosophy. He told himself that his
father would appreciate his motives, and, though he might sneer at
his decision, yet would accept it. He even persuaded himself that the
Commandatore must have intended to suggest that he should break
away from the old life when he had persuaded him to take chambers
of his own. Yet, though he thus argued with himself, he did not go to
Westminster Mansions.
There was another reason for remaining away. The last
sentence in the note which Cornelius Jessel had brought him and
which had resulted in the immediate establishment of the shadow
now under his own roof, had suggested a new idea to him.
"Myra is crying her eyes out at your absence," the
Commandatore had written, and the written words had made him
think of Myra in a new light. Myra was not his sister. Sisters did not
cry their eyes out at their brothers' absence. Could it be that she
cared for him in anything but sisterly fashion? The train of thought
once started made him reflect. He could see now that Myra's
demeanour had been different to him in a hundred little particulars
during the past few months. The frank sisterly attitude of her early
years had been replaced by something entirely different. When they
had been boy and girl together she had been free as the day with
him. A girl of moods, subject to hurtling gusts of passion which would
pass as swiftly as they came, she had been prone to quarrel with
him on the slightest pretext, and as easily to forget the cause of her
grievance. But of late—for quite a year past—the attitude of the
woman had materially altered from that of the girl. Guy remembered,
when he came to reflect, that he had quite ceased to be the objective
of any of her explosions of passion, that she had been almost
humbly solicitous of his welfare, his comfort, his safety. He
remembered her distress when Hora had broached the question of
his residing in chambers, her troubled demeanour when any new
adventure was projected. He had thought little of these things at the
time, but in the clearer vision which was vouchsafed to him through
the medium of his own feeling towards Meriel, he began to suspect
something of the truth. He had never thought of Myra in the light of
anything but a sister. Hardly that even, for Hora had not left him in
ignorance of her parentage, and of later years his thought of her had
been rather as of a good comrade, trained like himself to wage war
with the world. But if she should have learned to care for him, as he
had learned to care for Meriel! No, that would be impossible. He put
the thought from him. But it recurred. It was the second good reason
which kept him away from Westminster Mansions.
He was glad when his week of solitude was over, for a London
which did not contain Meriel was an absolute wilderness, peopled
only with meaningless shadows. The week had seemed a month,
more, a year. But it passed, and the day dawned at last which was to
bring them together again under the same roof. The mere
contemplation of sleeping beneath the same roof set Guy's blood
tingling in his veins. He awoke gay and bright. For a while he would
put away all harassing thoughts of the future, and drink of the cup of
happiness held to his lips.
Even as he lifted the cup, Hora, though absent, dropped a leaf
of rue therein which destroyed its sweetness.
Amongst his letters that morning was one from the
Commandatore. "You have not been to see us," he wrote, "and Myra
is almost in despair. I tell her that youth has its distractions which
momentarily make one forgetful of old ties and obligations. She
seems to have some sort of fancy that a feminine distraction may be
the explanation of your long absence, and is jealous of the unknown,
an unphilosophic attitude of mind with which the mere male cannot
possibly cope. She cannot be made to understand that pleasure is
evanescent, and that satiety is avant courier to philosophy. I am not
surprised that you find your hands full; indeed, I am glad to think that
you must be acquiring a rich store of information which will be of the
greatest service in our future operations. En passant, if you see
anything of mine old enemy, do your best to cultivate the
acquaintance. I have a scheme in my mind which I think may enable
me to pay my debt in full. But more of that when we meet. I am in no
hurry. Revenge is so sweet a morsel that one rolls it on the tongue,
instead of bolting it whole, so I'll tell you about my idea when we
return to town, for I am going to take Myra away for a few days. She
seems a little pale, and sea breezes with companionship (of the
other sex) is almost invariably a specific for a sentimental malady.
We go to Scarborough to-day, but we shall be back in a fortnight. Let
us see you immediately we return."
When Guy laid down the letter the sparkle had gone out of the
cup of his enjoyment. He did not conceive that the writer of the letter
had been fully conversant with all his plans. He credited Hora with
trusting him as fully as he trusted Hora. To imagine that the
Commandatore had set a spy upon his movements never entered
into his calculations. He had no suspicions that the obsequious
Jessel who waited upon him so attentively was other than he
seemed. So, in following the dictates of his heart, he felt that he was
acting treacherously to his father, while if he were to fulfil his father's
desires he would sink unutterably in his own estimation. Between
what he considered his duty and his inclination, his mind was in
turmoil.
The thought of Meriel expecting him proved the dominant factor
in his ultimate decision. While hesitating whether or no to telegraph
an excuse for not keeping his appointment, Jessel announced that
he was going on with the luggage. At that moment Guy formed the
resolution definitely and absolutely that he would have done with the
past.
The resolution strengthened on his journey. If Lynton Hora could
have known the effect his letter had produced he might have
hesitated before he posted it. But he had only suspected some
weakening of Guy's enthusiasm, and he had thought that a reminder
would be quite sufficient to recall Guy's errant fancy. Perhaps had he
not trained Guy, for his own protection, to so honest a conception of
loyalty to his friends, the subtle poison of his letter might have
produced the effect he had intended. As it happened, the suggestion
Hora had desired to convey, that Meriel should be a temporary
distraction, to be tossed lightly aside when it suited his purpose,
never came home to Guy. The further suggestion, that Myra was
waiting and longing for him, did, however, affect him unpleasantly,
even though he could truthfully declare that he had never given her
reason to imagine that his affection towards her was more than
brotherly.
The final suggestion that he should insinuate himself into the
confidence of the Marvens in order to minister to Hora's scheme of
revenge was, however, the culminating point. His whole nature
revolted at the thought. Though by his early training he saw nothing
wrong in preying upon the world, instinctively his mind rebelled at the
idea of victimising his friends. Though the world might dub him thief
—he would have shrugged his shoulders in amusement at the
world's folly in doing so—yet his sense of honour was far keener
than that of the majority of those who would have thrown the epithet
at him, Captain Marven, henceforward, should be secure, so far as
he was concerned. There was no obligation upon him to take upon
himself the burden of another man's quarrel, even though that other
man were his own father. The philosophic Commandatore himself
would necessarily admit the logic of such a decision.
Busied with such thoughts, it seemed to Guy that he had hardly
entered the cab before it stopped at the railway station. He had no
intention of turning back. Jessel was awaiting him on the platform.
He saw his master into his seat and retired to another compartment,
where he had reserved a corner seat for himself. Guy had given him
no instructions to proceed beyond the railway station, so Cornelius
decided that he might just as well take it for granted that he was to
accompany his master, particularly as Hora had impressed upon him
the necessity for obtaining exact information regarding Guy's
relationship with the members of the Marven household. Still busied
with his train of ideas, Guy did not bestow another thought upon his
valet.
The train wandered but slowly onwards to its destination, far too
slowly for Guy's desires, but Whitsea was off the main route to
anywhere, and the railway service was the minimum which a sleepy-
headed management thought would serve the necessities of the
situation. But at last Guy knew that he was nearing his destination.
The country stretched out flat on either side of the railway track,
unbroken for miles. Through the open window of his compartment
entered the cool salt breath of the sea. On his right a gleam of silver
shone amidst the green and crimson carpet of the marsh lands. The
silver streak broadened. Now it bore a red-winged barge on its
bosom, and there came in view the white wings of a flight of small
craft skimming upon the water. Next appeared a cluster of red-tiled,
red brick houses shimmering in the heat. The train drew into a