KOGER PROPERTIES, INC.

(Case 5)

I. KEY FACTS
 Michael Goodbread accepted an entry-level position with Touche Ross & Company
after graduated from college which he considered as its first step toward reaching his
objective.

 In February 1972, Goodbread received his CPA license in the state of Florida and
became one of the partners of Touch Ross after eight years.

 In December 1989, Goodbread became a partner with Deloitte & Touche- the merger
of Deloitte, Haskins & Sells and Touche Ross.

 Goodbread served as an audit partner in the Jacksonville, Florida, office of Touch Ross
before the merger and assumed an identical position following the merger.

 During the late 1980s, considering local companies in making investment decisions,
Goodbread caught the attention of Koger Properties, Inc., a real estate development
company headquartered in Jacksonville.

 In December 1988, Goodbread purchased 400 shares of Koger’s common stock at a

price of $26 per share and he had approximately 25 million shares of common stock
outstanding at that time.

 Goodbread’s first assignment was to supervise the audit of Koger Properties for its
fiscal year ending March 31, 1990 and signed the Audit Report Record for the Koger
engagement on June 27, 1990.

 The date of the unqualified opinion being issued by Goodbread on Koger’s financial
statements was on June 11, 1990 which was just a month earlier when he sold his 400
shares of Koger stock.

 The Securities and Exchange Commission (SEC) publicly censured Goodbread for
having violated the profession’s auditor independence rules and for issuing an
improper opinion on 1990 Koger’s financial statements.

 In September 1991, Koger filed for bankruptcy and the its stockholders also filed a
class-action lawsuit against the audit company stating that the deficient 1989 and
1990 audits allegedly contributed to the subsequent decline in Koger’s stock price.
 In July 1997, the US Court of Appeals ruled that the Koger stockholders failed to prove
that any errors made by Deloitte during the 1989 and 1990 Koger audits caused the
losses they subsequently incurred.
II. SWOT ANALYSIS

STRENGTH
 Merger. The merger of Deloitte, Haskins & Sells and Touche Ross making it one of
the large international accounting firms.

 High salary. The six-digit salaries earned by partners provided them to have large
funds needed for investment.

WEAKNESS
 Unfamiliarity of the profession’s auditor independence rules. The absence of
knowledge of the audit partners with regards to their basic ethical rule for independent
auditors is really a weakness for the company for they are unable to perform their
certain duties and responsibilities as a professional auditors.

OPPORTUNITY
 Supervision of Koger Properties, Inc.. Goodbread’s role as the Audit Engagement
Partner is a stepping stone for him to greatly develop and achieve more of his career
goals.

THREAT
 Revelation of Michael Goodbread’s ownership interest in Koger Properties,
Inc.. This shameful revelation led to a series of problem that Deloitte & Touche
encountered with its audit client Koger. And with this also reflects the image of the
audit company they are protecting for.

III. RECOMMENDATION

It is a vital part of a professional to know its specific profession’s rules and regulations. In
Michael Goodbread’s case, as a CPA, he should have familiarized the fundamental principles
of the CPA profession. Accountants have this Code of Ethics which states that independence
shall be considered impaired if during a professional engagement, the professional has any
direct or material indirect financial interest in the client company. Otherwise if the auditor is
not independent then any procedures he might perform is not in accordance with the
Generally Accepted Auditing Standards (GAAS) and shouldn’t be expressing an unqualified
opinion. Upon knowing his assignment, Goodbread should have disclosed this to the Deloitte
& Touche his ownership interest towards the audit client so as not to impair independence or
else he should have disclaim his opinion with respect to the financial statements of Koger
Properties and stating that he is not that really independent.