Auditors’ Duty to Respond to “Red Flags” Indicative of Overvaluation of Inventory: A Case Study of Sanchez v. Deloitte & Touche
Journal Title: Journal of Economics, Finance and Management Studies - Year 2021, Vol 5, Issue 08
Abstract
This is a legal case study of Sanchez v. Deloitte & Touche. It covers: (a) legal elements of a securities fraud claim; (b) the effect of the Private Securities Litigation Reform Act upon the pleading of an auditor’s complicity in securities fraud; (c) how SEC Rule 10b-5 affects auditors; (d) potential red flags pertaining to an audit client’s deficient inventory control system; (e) the failure of a client’s internal controls to detect a gross overvaluation of inventory; (f) the failure of an auditor to ensure that the client’s inventory is valued at the lower of cost or market, as required under General Accepted Accounting Principles; (g) the court’s decision as to whether the auditor in this case was liable for complicity in securities fraud, the court’s legal justification for the decision, and the impact of the red flags on the court’s decision.
Authors and Affiliations
Stephen Errol Blythe
Keywords
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- EP ID EP705454
- DOI 10.47191/jefms/v4-i8-02
- Views 91
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