Koss Case Essay

9786 words - 40 pages

Vol. 26, No. 3
pp. 547–568

American Accounting Association
DOI: 10.2308/iace-50004

Koss Corporation Case: Trouble in Brew City
Brian Daugherty and Daniel G. Neely
ABSTRACT: This instructional case provides auditing students an opportunity to
examine an interesting real-life embezzlement and financial statement fraud occurring at
a publicly traded company in the post-Sarbanes-Oxley (SOX) era. The case focuses on
independent auditors’ and senior management’s reporting responsibilities related to
internal control over financial reporting involving smaller public companies (nonaccelerated filers). While all public companies are subject to ...view middle of the document...

John C. Koss has served continuously as the
company’s Chairman of the Board of Directors since 1958 and as Chief Executive Officer (CEO)
until 1991. In 1987, Michael J. Koss succeeded his father as President, Chief Operating Officer
(COO), and Chief Financial Officer (CFO). He became the company’s CEO in 1991 and
Vice-Chairman of the Board in 1998. His brother, John Koss, Jr., is Koss’ Vice President of Sales
(SEC 2009a). Ninety-nine percent of Koss’ product sales for the fiscal year ended June 30, 2009,
were stereo headphones (SEC 2009b).
For fiscal year 2009, the total compensation paid to John C. Koss, Michael J. Koss, and John
Koss, Jr., was $267,242, $450,507, and $235,122, respectively (SEC 2009a). Michael J. Koss’

Brian Daugherty is an Assistant Professor and Daniel G. Neely is an Assistant Professor, both at the
University of Wisconsin–Milwaukee.
We thank Tim Yang for valuable research assistance in the completion of the Koss Corporation Case.

Published Online: August 2011



Daugherty and Neely

educational background is a degree in anthropology from Beloit College in Wisconsin. A 2001
award was posted on the college’s website, as follows (Beloit College 2001):
Michael J. Koss, class of 1976, is a symbol of the quality of the liberal arts education we offer.
He has indicated that everything he needed to know for his impressive success in business, he
learned in anthropology at Beloit. He has served his family business as CEO, served the
College through his philanthropy and as chair of the Board of Trustees, taken a leading role in
the advancement of symphony orchestras, and had guided an international organization of
young executives as president. Despite a hectic international schedule, he has a relaxed style
that calms all around him as he works out solutions to intriguing and complex problems.
His anthropology background has been cited in USA Today as the hot asset for corporate
leadership in the business world. He has inspired public confidence in Koss Corporation,
through his media appearances, including offering astute business analysis on CNBC television
and by providing the contents of his shoulder bag—demonstrating the necessary tools of the
modern executive—for editorial scrutiny on the business pages of the New York Times.
He has never relied on conventional solutions or routine answers, but rather has sought to
invent himself over and over again, working outside the box to develop new solutions, markets,
and concepts as needed. In gratitude for the leadership he has provided Beloit College as a
member and chair of the Board of Trustees, as a valued advisor to the leadership of the College,
and as an example to generations of graduates, the Beloit College Alumni Association is proud
to confer upon Michael J. Koss its highest distinction, the Distinguished Service Citation.
Unlike many other companies, Koss remained profitable through the economic downturn of the
late 2000s,...

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