Case Study: When the Music Stops: Crazy Eddies

1. At Crazy Eddie, the management team established deceiving the auditors as a primary strategic objective. If management spends considerable time and effort on this goal, is it possible that the auditor can still fulfill his or her mission of ensuring the financial statements are not materially misstated? If so, what steps can an auditor take to overcome these types of situations?

2. How could the auditors have determined that the inventory balance was materially misstated? What changes to the audit plan would have been necessary to validate the existence and valuation of inventory?