Solved: 1 What breaches of fiduciary duty does the

Adelphia case

1. What breaches of fiduciary duty does the Adelphia case raise?

2. Why do you think the Rigas Family thought they could get away with using Adelphia as their
own piggy bank?
3. What allowed the Rigas Family to get away with their fraudulent behavior for so long?
4. What concerns should have been raised in the following areas of risk assessment in
Adelphia’s control environment: Integrity and ethics, commitment, Audit Committee
participation, management philosophy, structure, and authority?
5. What concerns should have been raised in the following areas of risk assessment in
Adelphia’s strategy: Changes in operating environment, new people and systems, growth,
technology, new business, restructurings, and foreign operations?
6. What is your opinion on the importance of independence in corporate governance? What are
the most recent rules on corporate governance for public firms?
7. Discuss which changes could be done to the Adelphia’s control system and corporate
governance structure to mitigate the risk of accounting fraud in future years.
8. What is the auditor’s responsibility in case of fraud?
9. What is the proper audit procedure to ensure?
a. Completeness of liabilities in the financial statements?
b. That all the related parties have been included or disclosed in the consolidated financial
statements?
10. Do you think analytical procedures would aid the detection of fraud? What is the
responsibility of the auditor applying analytical procedures?
11. What should the 450 lending institutions have done to protect themselves from subsequent
lawsuit?

On June 20, 2005, “John Rigas, the 80-year old founder of Adelphia Communications Corp.,
was . sentenced to 15 years in prison and his son Timothy, the ex-finance chief, got 20 years for
looting the company and lying about its finances.”1 These were the largest sentences handed
out to CEOs and CFOs after the Sarbanes-Oxley Act (SOX) and before the sentencing of
Bernard J. Ebbers, CEO of WorldCom, and Dennis Kozlowski, CEO of Tyco, and before the trial
of Richard Scrushy, CEO of HealthSouth.

ANSWER
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