1.Highlight some of the red flags that stakeholders should have been aware of. Why do you think so many investors ignored the red flags? What part did the auditors play?
2.Elaborate on exactly what Petters and his employees were doing with physical inventory and the recording of inventory. How were lock boxes used by Petters and the banks? These schemes should have been uncovered by many players. Comment on how professional skepticism is essential in an accountant’s professional life.
Answer preview
As mentioned above, Petters was smart in his way of doing things. He and his employees often fabricated documents that listed goods bought in the name of PCI from several vendors and then sold to retailers. Petters and his employees also falsified PCI financial statements to indicate that the company has owned billions of dollars from retailers with the aim of luring potential investors (Blake, 2011). Petters used lockboxes in conjunction with commercial banks to facilitate the flow of business transactions from his other investors. The lick boxes were also used as a way to speed-up & simplify the collection and processing of account receivables. To make this useful, Petters asked his investors to pay and remit payment documents directly on mailboxes located on an area accessible by the bank.
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