The early beginnings of Sunbeam Corporation can be traced back to the Chicago Flexible Shaft Company, founded by John Stewart and Thomas Clark in 1897.

Although the company did not change its name to Sunbeam until 1946, it adopted the name Sunbeam in its advertising shortly after it expanded into manufacturing electrical appliances in 1910.

Successful products in the 1930s included the Sunbeam Mixmaster, a stationary food mixer; the Sunbeam Shavemaster Shaver; the first automatic coffeemaker; and the first pop-up electric toaster. Later appliances included the hair dryer (1949), humidifiers (1950), ice crushers (1950), a knife sharpener (1950), the Sunbeam Egg Cooker (1950), the Sunbeam Controlled Heat fry pan (1953), and the electric blanket (1955). The company acquired rival household appliance maker Oster in 1960.
In 1981 Sunbeam was acquired by industrial conglomerate Allegheny International, which fell into bankruptcy in 1988 due to economic difficulties in its other divisions. Michael Price, Michael Steinhardt, and Paul Kazarian bought Allegheny from its creditors in 1990 and named the company Sunbeam-Oster. Kazarian assumed the positions of CEO and chair. Under his leadership the company paid off its debt, reorganized operations, and cut its workforce dramatically.4 The company went public in 1992. Kazarian was forced out in 1993 and replaced by Roger Schipke, a former manager of General Electric’s appliance division. Kazarian was subsequently awarded \($160\) million in a lawsuit he filed for being forced out. The company was renamed Sunbeam in 1995. That year, the company faced stagnant product prices and other difficult industry conditions, such as the growth of discount chains. In the face of these conditions, Sunbeam introduced new product lines, made acquisitions, and invested in greater production capacity.5 After several quarters of disappointing sales and earnings results, Schipke tendered his resignation in April 1996. The company named Albert J. Dunlap, chief of Scott Paper Co., as Schipke’s successor.
Sunbeam in 1996 Sunbeam Corporation had five major product lines in its domestic operations: household appliances, health care products, personal care and comfort products, outdoor cooking products, and “away from home” business. It also had international sales that accounted for approximately 19 percent of its total net sales.6 Household appliances (29 percent of 1996 domestic net sales) included blenders, food steamers, bread makers, rice cookers, coffeemakers, toasters, and irons. Examples of health care products (11 percent) were vaporizers, humidifiers, air cleaners, massagers, and blood pressure monitors. Its line of personal care and comfort products (21 percent) included shower massagers, hair clippers and trimmers, and electric warming blankets. Some of its major outdoor cooking products (29 percent) were electric, gas, and charcoal grills, as well as grill accessories. Its “away from home” business (5 percent) marketed clippers and related products for the professional and veterinarian trade as well as products for commercial and institutional channels...........

Case Questions

1. Based on your understanding of inherent risk assessment and the case information, identify three specific factors about Sunbeam that might cause you to elevate inherent risk.
2. Comment about how your understanding of the inherent risks identified at Sunbeam (in Question 1) would influence the nature, timing, and extent of your audit work at Sunbeam.
3. Next briefly identify the types of revenue earned by Sunbeam. Do you believe that any of the different types of revenue earned by Sunbeam “might be subject to significantly differing” levels of inherent risk? Why or why not?
4. For one of Sunbeam’s revenue types (please choose one), brainstorm about how a fraud might occur. Next identify an internal control procedure that would prevent, detect, or deter such a fraudulent scheme.