CASE ANALYSIS FOR AUDITING

Case Analysis for Auditing

Case Analysis for Auditing

Introduction

This paper is based on a case study that involves Health Management Inc. (HMI). The case highlights that the company is involved in an inventory fraud. Detection of potentially fraudulent economic recordkeeping and describing is one of the centered allegations of the external auditor. According to Fraudulent Financial Reporting, 1987-1997, a study published by the (International Federation of Accountants, 2005), most companies charged with financial fraud by the Securities and Exchange Commission (SEC) posted far less than $100 million in assets and revenues in the year preceding the fraud. Not amazingly, deception cropped up most often in businesses in the grabs of economic tension, and it was perpetrated most often by top-level executives or managers.

Analysis

This is a securities class activity conveyed by plaintiffs on behalf of all persons (the "Class") as described underneath, other than defendants and associated parties, who purchased or came by the common supply of wellbeing administration during the time span from June 15, 1995 to February 27, 1996, inclusive (the "Class Period").During the Class time span, wellbeing Management's economic results, as reported, did not unquestionably contemplate the Company's factual financial place and outcomes of operations. The economic outcomes which defendants handed out failed to be described in agreement with usually acknowledged accounting principles (Davenport, 2002).

Health Management's common stock was listed and traded on the NASDAQ under the symbol HMIS [sic]. The defendant Drew W. Bergman was Health Management's Chief Financial agent, business Development agent, Treasurer and Secretary. Under normal circumstances the PSLRA does not delineate what facts suffice to establish a "strong inference" of fraudulent intent. Instead, Congress, in its infinite wisdom, bestowed such duty to interpret upon the courts (Valley, 2007). Although Congress intended to eliminate the disparity in pleading standards among the courts, the interpretation of the "strong inference" standard enunciated under the PSLRA has been the source of debate among some courts. The source of this dissension stemmed from whether pleading facts supporting an inference of recklessness or motive and opportunity are sufficient to satisfy the "strong inference" standard under the PSLRA. The accusation also alleges that defendants Bergman and Hunter engaged in unlawful insider selling in the widespread stock of Health Management. In late May 1995, after discovering that wellbeing administration would not meet expected profits approximates for the quarter, Bergman sold Health Management supply from one of his personal brokerage accounts, bypassing roughly $13,563 in losses. In addition, directly former to a June 14, 1995 public broadcast by wellbeing administration of the smaller than expected earnings, Bergman tilted Hunter about the matter of the announcement. Following the broadcast, the cost of wellbeing Management widespread stock fallen by 28 percent (Davenport, 2002).

While in possession of the material, nonpublic information furnished by Bergman, Hunter traded securities in his own and of his client accounts, including accounts for Bergman, Bergman's children and brother, thereby avoiding losses in the total amount of $95,130. The economic declarations and outcomes comprised in the second quarter ...