koss case chapter 4.docx - Embezzlement at Koss over 12 Years Introduction John C Koss is recognized for creating the stereo headphone industry in 1958

koss case chapter 4.docx - Embezzlement at Koss over 12...

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Embezzlement at Koss over 12 Years! Introduction: John C. Koss is recognized for creating the stereo headphone industry in 1958 with his first stereo headphone. Koss Corp. (KOSS) was incorporated in 1971 in Milwaukee, Wisconsin and manufactures stereo headphones, speaker phones, computer headsets, telecom headsets, noise reducing headsets, and wireless headsets. It is in the audio/video segment of the home entertainment industry. Koss Corp. went public in 1965 at $5 per share. Over the last ten years, its stock price has ranged from $8 in July 2002, to its peak at $15 in July 2006 to its low at $4 in July 2010. It currently trades at approximately $5.50 per share. Accordingly, its market capitalization has ranged from $3.4 million to $12.8 million to its current level of $5.1 million. Thus, it was below the full implementation level of the Sarbanes-Oxley Act (SOX) where the cutoff is a market valuation of $75 million. The Chief Executive Officer (CEO), Michael J. Koss, and his family directly or indirectly own in excess of 70 percent of the company’s 851,000 shares. A $34 million embezzlement of cash from the Koss Corp. occurred over a 12-year period from 1997 through December 2009. June 30, 2009 10-K Report Excerpts: The Koss Corp. received an unqualified opinion on its financial statements as of June 30, 2009 and 2008 (as well as in prior years) by a Big Five auditing firm. However, in accordance with SOX, the audit firm was not required to have, nor was it engaged to perform an audit of Koss’s internal control over financial reporting. The audit did include consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Koss’s internal control over financial reporting. The following excerpts are from the Management’s Report in those same financial statements: Management believes that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate under the circumstances and necessarily include amounts that are based on best estimates and judgments. The Company maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and that the book and records reflect the authorized transactions of the Company.
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  • Headphones, Koss, Michael J. Koss

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