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Product Overview

By all accounts Crown Products appeared to be a star client; or so thought John Ford, the engagement partner now responsible for Crown's audit. In the five years since it went public in 1989, Mark Campbell, Crown's aggressive, sales-oriented chief executive, had managed to achieve compound annual growth of 12 percent, far in excess of the home products industry average. The stock market had rewarded Crown with a steadily climbing stock price, which hit an all-time high following an upbeat analyst presentation given by Campbell. The 1992 audit had just been completed by Ford's predecessor. Everything was fine, although accounts receivable and inventories were up. Should Ford be concerned as he assumes auditing responsibilities? What questions should he ask and of whom? This intriguing case is a disguised SEC enforcement action. Classroom discussion will highlight the importance of understanding financial market signals regarding a company when trying to assess its financial statements and viability. Topics pertinent to the discussion include auditing, financial analysis, control systems, and making a market for a stock. The A and B cases together may be used as part of an introductory audit course within the Understanding Client Constituencies module (UVA-C-2113).