Case 1.8 Crazy Eddie, Inc.

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The agents involved in this case are Eddie Antar the president and chairman of the board, Sam E. Antar the Chief executive officer, and Main Hurdman the audit firm. The case talks about Crazy Eddie Inc. which was a retail consumer electronics store in New York City. By 1987, Crazy Eddie Inc. had 43 retail outlets, sales exceeding $350million, and outstanding stock with a collective market value of $600 million. Antar’s most distinctive trait was this inability to trust anyone outside of his family even after he had been advised by the underwriting firm before the initial public offering. Antar hired his cousin Sam Anter as the CFO before the sale the Crazy Eddie’s stock. Between 1984- 1987 the company has triple on the annual sales volume and also the complicating matters with Antar’s inner circle of relatives, after he forced many of them to leave the firm. Antar resigned in 1986 as company president. The poor operating results in the fourth quarter of 1987 send the stock price down which it never recovered. In November 1987, new owners takeover the company uncovered the $65 million shortage of inventory, which led to bankruptcy. The SEC investigation revealed that, Antar ordered employees to overstate the inventory which led to overstate the gross profit. Also he asks them to understated the account payable and to destroy the computer based inventory system designed by the Main Hurdman and to return to the outdated manual inventory system. Several key accounting employees was involved on the scandal, including the director of the internal audit staff, the director of accounts payable and the acting controller. Audit issues • Objective of year-end inventory cutoff tests, Visit the stores without prior acknowledgement of it and check the inventory in place to detect the fabrication of inventory count • Contact the vendors, suppliers, creditors, etc. to

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