Case Analysis

1. What factors do you think influenced Molex management’s decision not to raise the issue with the auditors? The factors that I think influenced Molex management’s decision not to raise the issue with the auditors could have been many but I think the most significant was probably that they thought it was immaterial. The accounting error accounted for $8 million of inventory that had affected results for several years. Management did not find this error until mid-July 2004. The review states that Molex had struggled financially in 2002 and 2003. In first quarter of 2004 (ending September 30, 2004) revenue had increased by 29 percent for the first quarter of 2003. Gross profit margin was 35.7 percent for the first …show more content…
But there definitely are some trust issues that we would want to address. With the $8 million being seen as being immaterial, I would have probably supported both the CEO and CFO.

4. As a member of Molex’s board of directors, what would you do to respond to the auditor’s request that the CFO and possibly the CEO be replaced, and why? The magnitude of the auditor’s request to have both the CFO and CEO would have been very difficult to handle for the board. As discussed in class I feel that the right mode of action should have been to remove the Bullock and keep King. That would have shown that we take the auditors seriously and there would have been someone to blame the inventory reporting problem on. I would have stood behind King because of his vast knowledge of the company and the success that he has had. I feel that this method would show everyone within the company that there was a problem and that kind of behavior would not be tolerated. King should remain as CEO with a strong reprimand that if even a hint of a problem of distrust comes up again then he would be let go. The distrust issue definitely needs to be addressed so that in would not happen again. The next time King would have to sign a financial disclosure letter then he would be certain that what he was signing was truthful to the full extent of his