The accounting firm Naigle & Jente prepared the annual audit statement for the shareholders of Krusty Pie Inc. The report was very positive. It disclosed value in the company's assets and it projected profitability for the company in the coming year. After reading the report, Richard Rich, a shareholder, bought up all of the available shares of Krusty Pie Inc. and obtained a controlling interest in the company.

In fact, the report had not been prepared in accordance with generally accepted accounting principles; the assets of the company (and therefore the shares) were worthless.

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