Case 2-50 Koss Corporation
Management’s Trust
Management puts a lot of faith in those they appoint in positions of authority. This was
exactly the case of the Koss Corporation. It is “the responsibility of management for
establishing and maintaining an adequate internal control structure and procedures for
financial reporting.” (Gramling, Johnstone, & Rittenburg, p. 58) The members of
management in Koss were responsible for making sure there was a secure amount of
internal controls put into place. There should be supervision and monitoring implemented
in order to maintain limited control of financials. The reason Sujata Sachdeva was able to
get away with her theft for so long was due to her having too much control over Koss’s
financial reports. Management may have done this as a result of their trust in Sachdeva as
well as a result of their own laziness. Management put their relationship with Sachdeva
and their personal judgements over the company’s interest. As a result, they never looked
into the accounts Sachdeva had control over. This lack of segregation in the duties of the
financials led to a significant amount of fraud that the Corporation is held accountable for.
Thornton’s Obligations
It is essential that a company’s auditor maintain awareness for and stop fraud being
committed. “The auditor has a responsibility to plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by error or fraud.” (AICPA, 2002) Grant Thornton, the
company’s auditor, should have done this for the Koss Corporation. The job of the auditor
