Audit of family first farm

Reference no: EM1354173

Each year since 2007, the accounting firm of Goode and Thuro was contracted to prepare audited financial statements for Family First Farm. Each year until the current audit, the CPAs did not find any discrepancies. This year, Arthur Goode discovered quite a few discrepancies in Family First Farm's records. After some investigation, Arthur discovered Eva, who handled accounts receivable for Family First Farm, had embezzled approximately $50,000 in company checks and obtained a loan using falsified records. Instead of depositing checks into the company account, Eva endorsed and cashed approximately 75 checks made payable to Family First Farm over the course of nine months. In 2009, Eva falsified the accounting records to make it look like Family First Farm had more assets than the company actually owned. Eva then induced the local bank to give Family First Farm a loan based on these falsified records. The local bank president demanded the remainder of the loan be paid in full within 90 days. Family First Farm did not have the money to pay the loan. Which party or parties will be responsible for repayment of the loan to the bank? Are the accountants liable to anyone? Can Family First Farm recover the $50,000 in forged checks from Eva or the bank? Discuss why or why not.

Please cite references and support all responses with appropriate cases, laws, and other relevant examples.

Reference no: EM1354173

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