Case Fit Food Inc - Case

Problem 1: The growth rates were demanded to increase to 7% by corporate management instead of

the usual 5%. To realise this target, the division managers tend to seek their way in opportunistic

behaviour.

Solution: The implementation of this increase was the establishment of corporate management. This

was not discussed with the division managers and led to misconduct in order to reach the higher

target. The amount of liquidity to fund the corporate investments could also have been borrowed

from external banks/companies or could have been raised by issue more shares.

Otherwise, they could also choose for a more gradual/incremental approach by the growth rates

Although this operational trickery could be explained as ‘street-wise’, the liquidating of the

accounting reserves to fill the gaps can be called an offense to the solvability of the company.

Solution: The auditing firm partner Kristine should get a veto-right to call whenever Jack makes such

drastic decisions. A drastic decision can be stated as a decision which involves the reserves of the

company or shifts profits over time. The latter can be beneficiary for the managers but for the

shareholders it can be quite problematic.

Problem 3: Should Joe Jellison recalculate the financial statements and adjust the entries or should he

inform the external auditors and/or the audit committee of the Board of Directors?

Solution: In our opinion he should do both. Such malicious behaviour should be punished internally

as well externally. The managers should have went to the office of corporate management and told