Certified Public Accountants are expected to conduct themselves at a higher level than most other members of society and are held to the highest of ethical standards. The American Institute of Certified Public Accountants provides general accepted auditing standards and the code of professional conduct as a framework of guidance for CPAs to follow in performing audit procedures. The following audit case demonstrates potential problems that can occur when the client, Mattel, and the auditing firm, Arthur Anderson, are both at fault.In 1945, Mattel Inc. was established by Elliot and Ruth Handler and Harold Matson, who shortly after left the company for other employment opportunities. Elliot Handler invented and produced the toy products for Mattel while Ruth Handler oversaw and controlled the financial status of the company. Ten years after Mattel was introduced, its net worth increased to more than $500,000. Ruth decided to launch advertisements on children’s television networks. Costs for this project were high but the benefits greatly outweighed them. By 1971 market value reached $300 million and , “financial analysts recognized Mattel as one of the premier growth companies in the United States” (4).The early 1970's also brought about serious problems for Mattel. The company hired Seymour Rosenberg as the company’s executive vice president and chief financial officer. He wanted to make changes in how Mattel operated, so Rosenberg chose to reorganize the structure of the company by breaking down operations into different divisions of business. This process in turn increased operating costs. Rosenberg’s investments and decision-making were unsuccessful and he was dismissed from Mattel a few years later. Three other factors also contributed to the weakening of Mattel’s profitability and a loss of $30 million. First, in 1970, a large warehouse stationed in Mexico was burnt down and dest...
