Forensic accounting

1. Sam Johnson is a new partner in Wilkerson , James , and Flores , an accounting firm . He is incharge of an audit for Zappo Electronics , which manufactures circuit board parts for majorinternational electronics companies .Zappo's main asset is it's inventory . which is listed on the books at $742. 000. After doing acomplete audit of the inventory . however , Sam discovered that nearly half of it is obsoleteand worthless . HE reported to the partner in charge that the inventory needs to be writtendown by $350. 000 before the firm could sign off on a clear opinion .The partner in charge meets with Zappo's CEO Who argues strongly against any write - downof inventories ."We'll find a market for every last item in the inventory ," said the CEO." It might take sometime , but we'll sell everything ."The partner in charge tried to disagree . but the CEO was adamant ." If you make us write*down the inventory that much . we won't be able to get any more bank loans , and that will putus out of business ."The senior partner and the CEO haggled back and forth until they finally agreed to a$125. 000 write- down ." That will keep our credit intact , " said the CEOThe next day . Sam met with the senior partner ." We've agreed to a $125. 000 write- down ," said the senior partner to Sam ." The company hasalready made the adjustment , and now I want you to sign the audit report without any*qualifications or modifications . This is a good client , and I'm not going to let us lose it oversomething stupid like this . "Sam objected . His analysis of the inventory was solid, and he did not understand how anhonest auditor could simply negotiate a write - off ."Forget about it ." said the partner in charge ." The company is financially sound , so whatdoes it matter ? Where's our liability ? WE don't have to worry about getting sued unless thecompany fails , and you know it isn't going to fail . It's overflowing with military contracts . Iwish I owned part of the company myself. "" But that's not how we're supposed to do auditing, " said Sam ."Look, " said the senior partner ." Who's to say for sure what that inventory is worth ? Justforget about it. Besides , we can get it to do more write - off's next year . If I listened to you .there would be no next year . the company would be cut off from it's creditors and out ofbusiness*Do you agree with Sam or the senior partner ?"} .Defend your position .*C .Should auditors consider the impact of their opinions on clients ?" A negative*opinion can sometimes destroy a company