8Ed.sol2.1 - CASE 2.1 JACK GREENBERG INC Synopsis In the...

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CASE 2.1 JACK GREENBERG, INC. Synopsis In the mid-1980s, Emanuel and Fred Greenberg each inherited a 50 percent ownership interest in a successful wholesale business established and operated for decades by their father. Philadelphia-based Jack Greenberg, Inc., (JGI) sold food products, principally meat and cheese, to restaurants and other wholesale customers up and down the eastern seaboard. The company’s largest product line was imported meat products. Following their father’s death, Emanuel became JGI’s president, while Fred accepted the title of vice-president. In the latter role, Fred was responsible for all decisions regarding the company’s imported meat products. When JGI purchased these products, they were initially charged to a separate inventory account known as Prepaid Inventory, the company’s largest account. When these products were received weeks or months later, they were transferred to the Merchandise Inventory account. In 1986, the Greenberg brothers hired Steve Cohn, a former Coopers & Lybrand employee, to modernize their company’s archaic accounting system. Cohn successfully updated each segment of JGI’s accounting system with the exception of the module involving prepaid inventory. Despite repeated attempts by Cohn to convince Fred Greenberg to “computerize” the prepaid inventory accounting module, Fred resisted. In fact, Fred had reason to resist since he had been manipulating JGI’s periodic operating results for several years by overstating its prepaid inventory. From 1986 through 1994, Grant Thornton audited JGI’s annual financial statements, which were intended principally for the benefit of the company’s three banks. Grant Thornton, like Steve Cohn, failed to persuade Fred Greenberg to modernize the prepaid inventory accounting module. Finally, in 1994, when Fred refused to make certain changes in that module that were mandated by Grant Thornton, the accounting firm threatened to resign. Shortly thereafter, Fred’s fraudulent scheme was uncovered. Within six months, JGI was bankrupt and Grant Thornton was facing a series of allegations filed against it by the company’s bankruptcy trustee. Among these allegations were charges that the accounting firm had made numerous errors and oversights in auditing JGI’s Prepaid Inventory account. 92 Jack Greenberg, Inc.—Key Facts
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93 Case 2.1 Jack Greenberg, Inc. 1. Emanuel and Fred Greenberg became equal partners in Jack Greenberg, Inc., (JGI) following their father’s death; Emanuel became the company’s president, while Fred assumed the title of vice-president. 2. JGI was a Philadelphia-based wholesaler of various food products whose largest product line was imported meat products. 3.
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8Ed.sol2.1 - CASE 2.1 JACK GREENBERG INC Synopsis In the...

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