Financial Reporting Problems at Molex Inc A Case Solution

Case Solution

Carrying out a CPA problem at Molex, the firm's auditors request modifications in management. The board of company company directors must determine if the auditors' concerns have merit or maybe, as management argues, the accounting issue is immaterial.

Excel Calculations

·         EPS with and Without Error Correction  

·         EPS for 2004      

·         Scenario 1          

·         All Error is reversed        

·         Resulting EPS    

·         %age EPS Change           

·         Scenario 2          

·         Only 2004 Error is Reversed        

·         Resulting EPS    

·         %age EPS Change  

Questions Covered

1. Why does Molex have to hire an external auditor?

2. What was the financial reporting problem at Molex? How would the correction of the problem be recorded in Molex's financial statements?

3. What factors do you think influenced management's decision not to raise the issue with the auditors?

4. Why were Molex's auditors so concerned about the reporting problem at Molex? If you were a member of the board, would you agree with their concerns?

5. As a member of Molex's board, what would you do to respond to the auditor's request that the CFO (and possibly the CEO) be replaced?