1. Describe how the correction of the overstated inventory, Retained Earning, and earnings would be recorded in financial statements following current US GAAP.

2. What factors do you believe influenced management’s decision not to raise the issue(s) with the auditors? Be specific.

3. Explain why auditors were concerned about the financial reporting problem that was overstate inventory, retained earnings, and earnings. If you were a member of the board of directors of the company during that time (for example, a member of the Audit Committee), state whether you would have agreed with the auditor’s concerns. Be specific.

4. As a member of board of directors at that time, what would you have done to respond to the auditor’s request that the CFO (and possibly the CEO) be replaced? Explain the implications of replacing or not replacing the CFO. Be specific.