1. Explain how Ahold used promotional allowances to manipulate earnings. Refer to the fraud triangle described in this chapter and analyze the incentives, pressures, and opportunities to commit fraud at Ahold.
2. Utilize the COSO Integrated Framework and discussion of risk assessment in the chapter and evaluate the deficiencies in the internal control system at Ahold. Include in your discussion whether Ahold adequately monitored its internal controls as suggested in COSO’s Guidance on Monitoring Internal Control Systems discussed in the chapter.
3. The court ruled that Deloitte was not responsible for the fraud at Ahold because its management deceived the auditors and hid information from the firm. How does such deception relate to the Deloitte auditors’ obligations to identify material misstatements in the financial statements of Ahold and provide an opinion that the statements present fairly financial position, results of operations, and changes in cash flows? Do you believe auditors should be let off the hook with respect to their ethical and professional obligations because of management deception?
4. In addition to the deficiencies in accounting for promotional allowances, Ahold engaged in joint venture transactions that materially misstated the financial statements. Review the litigation referred to in the case and describe the nature and scope of the joint venture transactions and what problems existed with the company’s accounting and financial reporting and answer the following two questions.
a. Evaluate the operation of internal controls with respect to accounting for the joint venture transactions. How might the company have strengthened its controls?
b. From a corporate governance perspective, what were the deficiencies that seem to have contributed to the fraud in accounting for and reporting the joint venture transactions? Can you identify corporate governance mechanisms that might have helped prevent or detect the fraud at Ahold but that were nonexistent?