17;s financial statements were not thoroughly investigated and researched. The following are examples of the deficiencies that occurred in Arthur Anderson’s audits of Mattel. Mattel’s executives created the “bill and hold” program to expand reported earnings. Customers were charged for future sales and then these sales were recorded immediately. Order forms, invoices and bills were falsely prepared and signed by employees. This eventually led to confusion, errors, and oversights in both the accounting and inventory departments. In attempt to correct this executives reversed sales creating another bigger problem, net sales were in the negative. Arthur Anderson states that they were not aware of the bill and hold program until it was made public. The SEC recognizes that if sufficient tests were performed, Arthur Anderson would have realized the bill and hold procedure. For instance, copies of the bills had written “bill and hold” on them and Arthur Anderson failed to address Mattel’s executives as to what that exactly meant. As a result, customers’ accounts were charged improperly and inaccurate sales were recorded. Arthur Anderson also neglected to recognize that the invoices had improper routing and delivery instructions and the signatures were forged by Mattel employees for both customers and the carriers. Arthur Anderson neither understood their client’s internal control nor asked any questions regarding how sales were recorded. August 1971 was tested and this happen to be a month were the largest reversing entry took place to “eliminate a portion of the bill and hold sales booked in January 1971" (8). This effected the general ledger sales to be $7 million less than the monthly sales figure. Arthur Anderson willingly accepted the client’s explanations as audit evidence without further investigating the problem themselves.As new products originated, costs...
