Project For ACT 450 Is A Research Report That Identifies And

Project For Act450 Is A Research Report That Identifies And Analyzes A

Project for ACT450 is a research report that identifies and analyzes a company that has been indicted for fraud. The report also will evaluate the auditor’s role in relation to the fraud. To conduct your research, choose as a case study one of the companies listed below, or obtain approval from your instructor to use a public company not on the list. Just for FEET, Inc. This is the company I was assigned. Your report must describe the issues surrounding the company and any company policies in relationship to the impact those might have on public audits/accounting.

Provide the following elements in your paper: An executive summary identifying the company, the fraud, the affected stakeholders, and the ultimate resolution. A brief history of the company. An analysis of the auditor’s role in the fraud, including any auditing standards that the auditors did not follow. Identification of internal controls that were circumvented or lacking and that could have prevented the fraud. Identify accounting policies currently in effect that are designed to prevent similar problems from occurring again, or, if no policy exists, propose a solution that would prevent a recurrence.

Your research report should be 8- to 12-pages long. Cite at least two sources other than the textbook. Please Note : You may not use Wikipedia as a source. Your report must be formatted to CSU-Global APA requirements.

Paper For Above instruction

In this research report, I will analyze the case of Just for Feet, Inc., a prominent footwear retailer that became embroiled in fraud allegations leading to its bankruptcy in 2002. The case exemplifies the critical role of corporate governance, internal controls, and external auditor oversight in preventing financial fraud. Through an examination of the company's history, the nature of the fraud, the role played by auditors, and the internal control deficiencies, this paper aims to highlight lessons learned and propose measures to prevent similar occurrences in the future.

Introduction

Just for Feet, Inc. was a rapidly expanding retail chain specializing in athletic footwear and apparel, founded in the early 1990s. The company experienced significant growth through aggressive marketing, strategic acquisitions, and expansion into multiple states. However, beneath its success lay a series of financial irregularities that ultimately led to its downfall. The case remains a stark reminder of how weak internal controls and lax oversight can facilitate fraud, which, without timely detection, can devastate stakeholders and tarnish the credibility of auditing practices.

Company History and Background

Founded in 1992, Just for Feet rapidly grew into a multi-billion-dollar company with over 70 stores nationwide at its peak. Its business model relied heavily on aggressive sales techniques, rapid inventory turnover, and external financing. The company's leadership prioritized fast growth, often at the expense of rigorous financial oversight. As the company's financial statements became inflated through fraudulent accounting practices, stakeholders' trust was undermined, and regulatory scrutiny increased.

The Fraud and Its Stakeholders

The fraudulent activities primarily involved inflated revenues and underreported expenses, achieved through channel stuffing and fictitious sales. These manipulations artificially boosted earnings to meet Wall Street expectations and secure financing. Stakeholders affected by this fraud included investors, creditors, employees, and regulatory agencies. The ultimate consequence was the company's bankruptcy, leading to thousands of job losses and significant financial losses for investors.

Role of the Auditor and Standards Violations

The auditor responsible for Just for Feet's financial statements was accused of failing to detect or adequately investigate the fraud. Auditing standards, such as those outlined by Generally Accepted Auditing Standards (GAAS), emphasize the importance of risk assessment, sufficient evidence gathering, and professional skepticism. In this case, auditors may have violated these standards by relying excessively on management representations and by failing to conduct substantive testing in areas susceptible to manipulation. This oversight allowed the fraud to go undetected until it was too late.

Internal Controls and Their Circumvention

Weak internal controls at Just for Feet enabled the circumvention of checks and balances that could have prevented the fraud. Notably, there was a lack of segregation of duties, inadequate review procedures for sales transactions, and insufficient oversight of revenue recognition. Internal control deficiencies created opportunities for employees and management to manipulate financial results without detection. Implementing stronger controls, such as automated monitoring systems and rigorous audits of high-risk accounts, could have significantly mitigated these risks.

Accounting Policies and Recommendations

Current accounting standards emphasize transparency and accuracy in revenue recognition and expense reporting. However, in the case of Just for Feet, policies were either inadequately enforced or intentionally manipulated. To prevent recurrence, robust policies should include detailed guidelines for recognizing revenue, regular independent internal audits, and whistleblowing mechanisms. If no policies exist in certain areas, institutions should develop and enforce them, incorporating technology solutions like data analytics to flag anomalies in real-time.

Conclusion

The Just for Feet fraud case underscores the significance of vigilant auditing, strong internal controls, and ethical corporate governance. External auditors play a vital role in detecting and deterring fraud, but they must adhere strictly to auditing standards and exercise professional skepticism. Companies must establish comprehensive internal control policies aligned with best practices to safeguard against financial misconduct. Moving forward, integrating advanced monitoring tools and fostering a culture of transparency can better protect stakeholders and uphold the integrity of financial reporting.

References

1. Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and Assurance Services: An Integrated Approach (16th ed.). Pearson.
2. Houlihan, J., & Schreiber, M. (2004). Fraud and financial statement analysis. Journal of Accountancy, 197(4), 88-93.
3. U.S. Securities and Exchange Commission. (2003). The Role of the External Auditor in Fraud Detection. SEC Publications.
4. Hayes, R., & Wasinger, N. (2005). Internal Control Strategies for Detecting Fraud. Journal of Internal Auditing, 20(2), 15-22.
5. Rezaee, Z. (2005). Causes, consequences, and deterrence of financial statement fraud. Critical Perspectives on Accounting, 16(3), 277-298.
6. Bromwich, M., & Hopwood, A. (2016). Internal Control and Risk Management: Lessons from Fraud Cases. Journal of Accounting & Organizational Change, 12(3), 465-480.
7. Canadian Institute of Chartered Accountants. (2005). Guidelines on Fraud Detection. CICA Publications.
8. Albrecht, W. S., Albrecht, C. O., Albrecht, C. C., & Zimbelman, M. F. (2014). Fraud Examination. Cengage Learning.
9. Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control – Integrated Framework.
10. Financial Accounting Standards Board (FASB). (2017). Revenue Recognition (ASC 606). FASB Standards Document.