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  • Krispy Kreme Case Assignment Questions

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    Dinh Ton
    262 vizualizări4 pagini
    This document contains 18 questions about a case involving potential fraudulent financial reporting at Krispy Kreme. The questions address various elements that may have contributed to the fraudulent reporting, including high turnover in the CFO position, lack of oversight on acquisitions, extreme focus on meeting Wall Street expectations, and accounting issues related to revenue recognition and purchase price allocations. The questions also examine potential failures in oversight by management, the board of directors, outside lawyers, and auditors that could have prevented the financial reporting problems.

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    Krispy Kreme case study accounting fraud

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    Krispy Kreme

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    This document contains 18 questions about a case involving potential fraudulent financial reporting at Krispy Kreme. The questions address various elements that may have contributed to the fraudulent reporting, including high turnover in the CFO position, lack of oversight on acquisitions, extreme focus on meeting Wall Street expectations, and accounting issues related to revenue recognition and purchase price allocations. The questions also examine potential failures in oversight by management, the board of directors, outside lawyers, and auditors that could have prevented the financial reporting problems.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    262 vizualizări4 pagini

    Krispy Kreme Case Assignment Questions

    Încărcat de

    Dinh Ton
    This document contains 18 questions about a case involving potential fraudulent financial reporting at Krispy Kreme. The questions address various elements that may have contributed to the fraudulent reporting, including high turnover in the CFO position, lack of oversight on acquisitions, extreme focus on meeting Wall Street expectations, and accounting issues related to revenue recognition and purchase price allocations. The questions also examine potential failures in oversight by management, the board of directors, outside lawyers, and auditors that could have prevented the financial reporting problems.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    din 4

    CASEASSIGNMENTKRISPYKREME[ALLQUESTIONS] GENERALQUESTIONS(thesequestionsarethesameforeachgroupmember) 1. Whatinyouropinionwerethemostimpactfulelementsthatcontributedtothepotential forfraudulentfinancialreportingatKrispyKreme?Identifyatleast3elementsand explainhoweachcontributedtothepotentialforfraudatKrispyKreme. 2. HowdoyoubelievetheinappropriatefinancialreportingatKrispyKremecouldhave beendetectedandpreventedbeforeitoccurred?Focusyouransweronorganizational structures,processes,personnel/departments,oroversightfunctionsthatcouldhave beenstructureddifferentlyorhaveacteddifferentlytodetectandpreventtheproblems. SPECIFICQUESTIONS(thesequestionsareuniqueforeachgroupmember) 1. (Structure/Organizational)KrispyKremesCFOpositionturnedover3timesin4years, withoneCFOsayinghewasuncomfortableintherole.Doesthisfrequencyofturnover attheCFOpositionsurpriseyou?Whyorwhynot?Howinyouropinionwouldthis dynamiccontributetoanenvironmentthatencouragedorfacilitatedthepotentialfor fraudulentfinancialreporting?

    orting? 2. (Structure/Organizational)ThecasenotesthatKrispyKremesacquisitionslacked coordination,oversightandcriticalanalysis,didnotutilizeoutsidevaluationadvice, andproceededonagetitclosedatallcostsmentality.Didthesefactssurpriseyou? Whyorwhynot?Howdoyouthinkthesefactsmighthavecontributedtoeventual accountingerrorsintheacquisitionaccounting? 3. (Structure/Organizational)ThecasenotesthatKrispyKremeexperiencedextremely highbusinessandstockpricegrowthinthe20002004timeperiod,wasamedia darling,andhadanextremefocusonmeetingWallStreetsexpectations.Howinyour opinionwouldthesefactorscontributetoanenvironmentthatencouragedorfacilitated thepotentialforfraudulentfinancialreporting? 4. (Structure/Organizational)ThecasenotesthatKrispyKremehadanextremefocuson meetingWallStreetsexpectations.Inyouropinionisthereanythinginherentlywrong withmanagementofapubliccompanyhavingafocusonmeetingWallStreets expectations?Explainyourationale.

    5. (Structure/Organizational)ThecasenotesthatinaculturedrivenbyWallStreet expectations,managementinherentlyknewthefinancialresultstheyneededtoachieve andformanyconsecutivequartersexceededWallStreetsconsensusexpectationsby exactlyonepenny.Dothesefactssurpriseyou?Whyorwhynot?Doyoubelieveitis appropriateforacompanytocalibrateitsearningstoachieveaspecificfinancialtarget eachquarterinordertomeetWallStreetsexpectations?Whyorwhynot? 6. (Structure/Organizational)Thecasenotesthatthecompanylackedresourcesthatwere adequatelyqualifiedintechnicalGAAPissuesandfinancialreporting.Itisalsoknown (fromtheProfessorsownexperience)thatthecompanyhadatendencytofirstdefine theGAAPanswertheydesiredandthenfindtheGAAPliteraturethatwouldsupport theanswer.Doesthecompanyslackofresources,anditsapproachtoresolvingGAAP accountingissuessurpriseyou?Whyorwhynot? 7. (Accounting/Disclosure)Thecase(pg9ofmaincaseandpgs67oftheAddendum) highlightsanissueintheDallasacquisitionregardingrevenuerecognitionon equipmentsoldtothefranchiseejustpriortotheacquisitiondatethatledtoround trippaymentissues.TheAddendumpagesindicatetheultimatecorrectaccounting (thelastunderlinedsentenceoftheconclusionpoint).Inyouropinionwhatarethe keyfact(s)thatsupporttheindicatedcorrectaccounting(thatthepreviouslyrecognized revenueandrelatedprofitwasreversed)?Whatinappropriateimpactdidthis transactionhaveonKrispyKremesbalancesheetandincomestatementbeforethe accountingwascorrected? 8. (Accounting/Disclosure)Thecase(pg9ofmaincaseandpgs89oftheAddendum) highlightsanissueintheMichiganacquisitionregardingpaymentsforamountsowed bythefranchiseetoKrispyKremethatledtoroundtrippaymentissues.The Addendumpagesindicatetheultimatecorrectaccounting(thelastunderlinedsentence oftheconclusionpoint).Inyouropinionwhatarethekeyfact(s)thatsupportthe indicatedcorrectaccounting(thatincomerecordedrelatedtotheseowedamountswas reversed)?WhatinappropriateimpactdidthistransactionhaveonKrispyKremes balancesheetandincomestatementbeforetheaccountingwascorrected? 9. (Accounting/Disclosure)Inyouropinion,doesaroundtriptransaction(wheretwo partiesexchangethesameamountofcashinabusinesstransactionsimultaneouslyor withinaveryshorttimeframe)inherentlyrepresentinappropriateaccounting?Whyor whynot?Canyouthinkofanyreasonswhyitcanbeappropriateaccountingfortwo partiestoexchangethesameamountofcashsimultaneouslyinabusinesstransaction andstillbewithinGAAPrules?

    10. (Accounting/Disclosure)Thecase(pg8ofmaincaseandpgs4and5oftheAddendum) highlightsissuesintheMichiganandCaliforniaacquisitionsthatledtoitemsbeing accountedforinthepurchasepricethatshouldnothavebeen.TheAddendumpages indicatetheultimatecorrectaccountingineachsituation(thelastunderlinedsentenceof theconclusionpoint).Whatinyouropinionisthekeyfact(s)thatsupportthe indicatedcorrectaccountingineachcase?Whyinyouropinionwouldanitem improperlyaccountedforasacomponentofthepurchasepriceleadtomisleading financialreporting? 11. (Accounting/Disclosure)Thecase(pg10ofmaincaseandpg12oftheAddendum) highlightsanissueregardingimproperrevenuerecognitiononthesaleofdoughnut equipmenttocompanyfranchisees.TheAddendumpg12indicatestheultimatecorrect accounting.Areyousurprisedthatthecompanyattemptedtorecognizerevenueinthis manner,consideringtheaccountingrulesthataresummarizedonpg12?Whyorwhy not?Doyoufeelthattheaccountingrules(assummarizedonpg12)containsome subjectivitythatwouldallowthecompanytointerprettherulesassupportingtheir originalaccountingtreatment?Whyorwhynot? 12. (Accounting/Disclosure)Thecase(pg8ofmaincaseandpgs1314oftheAddendum) highlightsanissueregardingtheuseofthecompanysIncentivePlantohelpachieve earningsthatexceededWallStreetsexpectationsbyexactlyonepennyeachquarter. DidthecompanysuseoftheIncentivePlaninthismannersurpriseyou?Whyorwhy not?Doyoufeelthatthecompanysaccountingtreatmentcouldbejustifiedinanyway relatedtotheIncentivePlan?Whyorwhynot? 13. (Oversight)Thecasehighlightsmanagementslackoffocusonstewardshipofthepublic company,managementsfailuresinestablishingappropriateinternalcontrols,and managementfosteringanenvironmentofpushingemployeestoclosedeals,among otherdeficiencies.Didthecasesdescriptionofmanagementsapproachsurpriseyou? Whyorwhynot?Howinyouropinioncouldthemanagementstructureand managementsactionsbeenmodifiedtohelppreventinappropriatefinancialreporting atKrispyKreme? 14. (Oversight)ThecasedescribesmanagementscommunicationswiththeBoardof Directorsasbeinghighlevelandlackingindetail,anddescribestheCEOsboard presentationsasbeinguniformlyupbeatandlackingincandorregardingthecompanys trueperformance.Didthecasesdescriptionofmanagementsinteractionswiththe BoardofDirectorssurpriseyou?Whyorwhynot?

    15. (Oversight)ThecasedescribestheBoardofDirectorsasbeingdistractedbythe companysearlysuccess,risingstockpriceandCEOcharisma,andcitesvariousother examplesofhowtheBoarddidnotadequatelydischargeitsoversightresponsibilities. DidthesecritiquesoftheBoardsperformancesurpriseyou?Whyorwhynot?Howin youropinioncouldtheBoardofDirectorshavemodifiedtheiractionstohelpprevent inappropriatefinancialreportingatKrispyKreme? 16. (Oversight)Thecasedescribesacompanywithlittlefocusoncomplianceoronan environmentofstronginternalcontrols.Specificexamplesincludealackofsenior technicalaccountingandreportingpersonnel,verylittlefocusonproperfinancial reporting,andaGeneralCounselwhodidnotseemtohaveadefinedroleinthe company.DothesecasefactsatagrowthcompanylikeKrispyKremesurpriseyou? Whyorwhynot? 17. (Oversight)Thecasenotesthatthecompanysoutsidelawfirmwasnotdeeplyinvolved insupportingthecompanysprocessofpreparingitspublicdisclosures,andthespecial committeeinvestigationsuggestedtheestablishmentofaDisclosureCommitteethat wouldbeoverseenbytheAuditCommitteeoftheBoard.Doesthelackofoversightby theoutsidelawfirm,orthelackofexistenceofaDisclosureCommitteepriortothe investigation,surpriseyou?Whyorwhynot?Doyouthinkthatmostpubliccompanies shouldinstituteaDisclosureCommittee?Whyorwhynot? 18. (Oversight)Althoughnotmentionedinthecasematerials,fromtheProfessorsown experiencethecompanysoutsideauditorsdidnotchallengeorquestionmanyofthe problematicaccountingissuesnotedthroughoutthecase,andtheauditfirmdidnot providetechnicalsupporttothecompanywhentheywerepreparingtheoriginal accountingforthesetransactions.Dothesefactssurpriseyou?Whyorwhynot?Doyou believethatthemajorityoftheproblematicaccountingissuesnotedthroughoutthecase wouldhavebeennoticeabletotheauditorsaspotentialproblemsiftheauditorshad investigatedtheaccountingforthesetransactionsatadetailedlevel?Whyorwhynot?

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