BarChris Construction - Case Study Example

BarChris Construction Affiliation: BarChris Conctruction’s audit results indicated numerous instances of material omissions resulting from the exclusion of accounting entries and misappropriation of funds to entrusting to non-business activities. Following the outcome of the audit, the judge considered a variety of figures and ratios that explicitly implicated the firm of concealing information relating to spending and liabilities. With reference to the financial years 1960 and 1961, the audit results show that current assets, contingent liabilities, gross profit, order backlog, officers’ loans, and debenture proceedings were accounting areas that included understatement of overstatement of figures.

The misappropriated entries included current assets having a 15% overstatement of $609,689; 42% understatement in contingent liabilities amounting to $618,853; gross profit overstatement of $230,755; $519,810 worth of sales’ overstatement; undisclosed loans to officers totaling to $386,615; and an overstatement in backlog of orders among other figures.Auditing involves the application of accounting principles as they relate to costs and revenues. Following the sale and leaseback cases, the judge’s argument that the gain on the debentures was improper is misleading since this approach is accepted in GAAP.

Although the customers who acquired the leaseback properties incurred overwhelming arrears on their discounted notes, it is not considered a reasonable standard for auditors to concern themselves with the effects of business strategies of the companies they audit. Hence, as earlier stated, the auditors’ responsibility is to access, point, question, and report on accounting activities and not on investment or business strategies associated with the gains (United States District Court, 1968).

The case of Berardi places himself at the center of blame for the problems associated with BarChart’s accounting misappropriations. The merits of blaming Berardi for the problems facing BarChris include his inability to dedicate more time to review the results of the S-1 review, the hiring of an inexperienced accountant, and concealing of information such as loans to officers. In order to rectify these causes of the primary problems, Berardi could have hired a qualified accountant, should have dedicated more time to review accounts, and conducted regular internal audits (United States District Court, 1968).

ReferencesUnited States District Court. (1968). Escott v. Barchris Construction Corporation 283 F. Supp. 643 (S.D.N.Y. 1968). Accessed online on February 24, 2015 from https://casetext.com/case/escott-v-barchris-construction-corporation