Health Management, Inc. Essay

1327 Words Dec 17th, 2015 6 Pages
Health Management, Inc. (HMI) is a pharmaceutical distributor founded by Clifford Hotte. In year 1995, the projected earnings per share of $0.54, of the company fall short of their expected earnings of $0.74. With this, Hotte decided to deceive their shareholders and asked their Chief Finance Officer (CFO), Drew Bergman, to manipulate their financial statement. They manipulated the information with regards to the ending inventory, and overstating it thereafter. The problem now arises on how they will have to cover up the fraud to their audit firm, BDO Seidman’s Long Island. BDO Seidman’s Long Island has long been the auditor of the company since it started. The company’s CFO, Drew Bergman, is originally associated with the audit firm …show more content…
In the end, it was BDO Seidman who underwent trial and defended itself from all allegations made. With the help of their defense attorney, headed by Michael Young, BDO Seidman obtained a favorable decision from the jury.

One of the questions raised during the trial of BDO Seidman is the need rather to show the audit working papers of inconclusive audit test. I believe that it is not really relevant to show the working papers especially if it does not show significant results or effects to the audit. It would just create a burden on the part of the auditor since it is up to his professional judgment already if such information is useful or not to his audit.

Another issue in the case is about inventory rollback. I believe that it is necessary to have this procedure because it can really check the existence and completeness of one's inventory, however there are disadvantages. Yes, it can validate the correct amount of inventory that should be reported since those inventories made after the cut-off date will not be included already and inventories in transit will be verified as well, but this procedure is too time consuming. Just like in the case, HMI's inventory is too large to perform a rollback. Another factor that affected this is the lack of the perpetual inventory system of the company that makes it more difficult and tiresome to confirm the inventory. However, it is to be noted as well it there really should be a significance if the procedure

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