Case 6.3 Koss Corporation and Unauthorized Financial Transactions

1. Why was Ms. Cohen not concerned that cash was overstated?

2. Which asset accounts might be overstated? How difficult would it be to overstate them? What would be the effect on Koss's value if assets were overstated?

3. Which liability accounts might be understated? How difficult would it be to understate them? What would be the effect on Koss's value if liabilities were understated?

4. Which expense accounts might be overstated? How difficult would it be to overstate them? What would be the effect on Koss's value if expenses were overstated?

5. How difficult would it be to understate revenues? What would be the effect on Koss's value if revenues were understated?

6. Of the possible errors (asset or expense overstatements, liability or revenue understatements), which is the most likely error? Which is least likely? Why?

7. What is the likely effect of the pending lawsuits on Koss Corporation's value? Explain.

8. Did the alleged embezzlement likely start in 2005, or earlier? Explain.

9. Was stability in Koss's management and board a strength or weakness in terms of corporate governance? Explain.

10. Evaluate Koss's compensation structure for its executives and its board. Did that compensation structure influence corporate governance? Explain