5. Given management’s awareness of such factors as the wholesale and retail valu

Question

5. Given management’s awareness of such factors as

the wholesale and retail values applicable to repossessed inventory,

the poor credit worthiness of many of its customers, and

the potential for VA and FHA rejection of insurance claims for loan losses on insured loans and, given the recorded value of the provision for loan losses in 1987, would it be appropriate to describe the 1987 consolidated financial statements for New Horizons, Inc. and/or the financial statements of Horizon S & L as materially false and misleading (i.e., fraudulent)?

Explanation / Answer

Given management’s awareness of such factors as

the wholesale and retail values applicable to repossessed inventory, the poor credit worthiness of many of its customers, and the potential for VA and FHA rejection of insurance claims for loan losses on insured loans and, given the recorded value of the provision for loan losses in 1987, it would be very appropriate to describe the 1987 consolidated financial statements for New Horizons Inc, and/or the financial statements of Horizon S & L as materially false and misleading.

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