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Jon Fries (CEO), Fletcher Anderson (COO), Craig Schuster (CFO), and Catherine Sprauer (division controller) were the four central figures in this case.
1. Identify the key responsibilities associated with the professional role of __________________. Briefly describe the type and extent of interaction __________________ likely had with F&C's independent auditors.

2. Using a [-10, 10] scale, where -10 represents “Highly Unethical” and 10 represents “Highly Ethical”, evaluate the conduct of the key individual discussed in question 1. Support your answer by providing ethical and economic arguments using facts from the case and information discussed in class. Be sure to discuss the ethical dilemma s/he faced, some of the available alternatives, the parties who would be most likely affected by the individual’s actions, and how.

3. Who benefits from the inflation of revenues and overstating of inventory? Who, if anyone, is harmed? Explain.

4. “Anderson insisted that Sprauer not tell him why she believed those records were unreliable because he wanted to avoid testifying regarding her concerns in any subsequent litigation.”
What concept does this action describe? Is this action legal? In your opinion, is it ethical?
5. Would you as the auditor of F&C regard the scenario, as whole, differently if a regular employee knew of the irregularities instead of one of the key individuals mentioned? Why?

6. Suppose you are the auditor for F&C. Consider the following scenarios independently:
a) First, consider that you are successfully fooled by the diversion strategies implemented by different managers and officers, and thus, you are unaware of the potential issues that are surfacing. Do you face a dilemma? Elaborate why or why not.
b) Now, suppose you become aware of the general issues. Namely, the irregularities surrounding “Warehouse Q” and the testimonies of the employees confessing to inventory manipulation. Moreover, you also observe key individuals departing from the company. Discuss the alternatives that you face, the related ethical and real implications, and, in your opinion, your preferred course of action.
c) Lastly, given the same facts as in b), now assume that F&C is your only audit client. How does this change your conclusion from the previous part?

7. In thinking back to the previous question, a set of particular circumstances may give rise to legal liability from the auditor’s perspective. Explain the term scienter, its relation to auditing of financial statements and its role in the legal liability exposure of auditors.

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