The management of a large manufacture of exercise equipment inflated net assets and net earnings by 1)recording fictitious sales and fabricating the underlying documentation; 2) debiting operating expenses to several construction projects in progress; and 3) inflating inventories by not recording sales returns and including the inventory at full cost, and inflating various inventory unit costs. These frauds were detected by IRS auditors after the companys check for payment of income taxes bounced. The independent auditors did not discover the misrepresentation, and the new management is now suing them for failure to detect the fraud. *** Determine the outcome and provide the rationale to support your conclusion on the basis of our classroom discussion.

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