tockholders (Staub, 1942). These reports were also to be certified by an independent accountant. The accountant was required to audit the statements to a high degree in scope and procedures that would be ordinarily used to prove the financial statements as dependable and comprehensive. Also this act had the requirement for an in-depth statement regarding the verification of securities owned by the investment trust or company to be full disclosed. The McKesson & Robbins scandal case of 1939 brought fraud issues to the center stage in the accounting and business world. This case made accountants aware that there was a need for much more careful auditing practices and more stringent mandatory standards. The McKesson & Robbins scandal case of 1939 involved the head of the Drug Company who had stolen millions of dollars by carrying fictitious inventories on the books. The McKessons & Robbins Company was given a clean audit by Price Waterhouse. In review, the Securities and Exchange Commission did an investigation that revealed that the audit Price Waterhouse conformed to the mandatory standards of that time. The American Institute of Certified Public Accountants made a review committee to set higher standards for auditors. An example of these new standards was direct verification of inventories when deemed necessary and selection of auditors by the companies’ directors with approval of stockholders. Stockholders should also be entitled to a description of the scope of the auditor’s work, and to read the auditor’s opinion in a separate section of the annual report (Carmichael, Willingham, 1979). The responsibility to of fraud detection was a question that was unanswered for many years until the McKesson & Robbins scandal case of 1939, which put this question in the spotlight. Before 1940, the uniform agreement as to the audit responsibility for the detection of fraud did not exist (Lee, 1988). By 1940, with heavy influence o...
