What specific types of frauds that the Coster conducted? Why auditors were not able to find the fraud? dicates a required field. CSESSING AND ESPONDING KO FRAUD RISKS sting Scandal Rocks Public Trust Accounting Sca raccounting profession w with new details nes in the United anulation of the ad Dyressional hearing Where were the aud on reform-minded at al CPAs in the ofession was under fire. Throughout the long, hot summer, newspapers were ails of a corporate accounting scandal. One of the largest, most respected nited States had been caught inflating earnings and assets through blatant the accounting rules. Thousands of investors and employees had suffered. hearings were called to examine and understand the fraud, and everyone asked, the auditors?" The accounting profession was under immense political pressure minded lawmakers, and the negative publicity surrounding the perceived audit fail- call CPAs in the most unfavorable light. E NEW YORK HERALD The year was 1938. The cor- porte accounting scandal was lesson-Robbins, and it argu- dy had a greater impact on the audits are performed than sy subsequent scandal, includ- y Etron and WorldCom. h 1924, Philip Musica, a high- shool dropout with fraud con- rictions and a prison record, reinvented himself as F. Donald Coster and awarded himself a medical degree. "Dr. Coster" to control of McKesson-Robbins and embarked on a massive fraud to inflate its share price rosson-Robbins inflated assets and earnings by $19 million through the reporting of nonex. ut inventory and fictitious sales. Coster duped McKesson's auditors, and the investing pub- to believing that the company had a huge drug inventory worth multimillions of dollars. didn't exist. Coster created phony purchase orders, sales invoices, and other documents, Which McKesson's auditors dutifully reviewed as evidence of the imaginary Inventory. The succeeded because the auditing standards of the day permitted auditors to confine them- to reviewing documents and talking to management. They were not required to physi- wly examine and verify inventories. an emergency board meeting, hastily called after the fraud came to light, word was irred suicide. An investment bank partner who served as a ceived that Coster had committed cKesson outside director, cong erned about his responsibilities, responded to the news by diming, "Let's fire him anyway! section in a GAAS Audit: SAS No. 99 Implementation Guide, Member Daniel L Goelzer at Investment but didn't exist. Coster al of which McKesson's ors dutifully ads of the Oy They were no Fraud succeeded bg selves to reviewing docun During an en
