Academic journal article Journal of the International Academy for Case Studies

Superior Foods: A Case Study in COSO Risk Assessment

Academic journal article Journal of the International Academy for Case Studies

Superior Foods: A Case Study in COSO Risk Assessment

Article excerpt


This case addresses the risk assessment process in the internal audit function. The level of difficulty is four. The case should require about three hours of classroom time for coverage and students should expect to spend another three to four hours in preparation time outside class. This case is designed to be used in an accounting information systems or auditing course, graduate or undergraduate. In order for students to learn how to audit a client's risk assessment process, they must first gain a detailed understanding of that process. This case has been developed to provide exposure to an actual company's risk assessment process and thereby provide guidance for this understanding.


This case describes the development, implementation, and results of a Fortune 500 company's risk assessment process. Some information about the company has been altered due to the company's request for anonymity. However, the detailed descriptions of the risk assessment process and the risks identified by management are factual.

The newly hired Director of Internal Audit Services in this case already had seven years of experience managing external audits for a major international public accounting firm. The company had been one of his audit clients, so he was very familiar with their internal controls and financial reporting procedures. He was hired to develop a comprehensive internal control program to comply with the COSO Report (1992). His first step was to develop a process of risk assessment. This case describes the design and implementation of that risk assessment process.

"I've done over fifty audits ... evaluation of internal control systems, tests of controls, substantive tests, etc ... now COSO requires management to have a risk assessment process. How do we design, implement, and then audit this new 'process?'"

--Greg Johnson, CPA

Director of Internal Audit

Superior Foods, Inc.


Superior Foods is a household name throughout the Southeast. When James Superior and his wife, Janie, opened the doors of his first grocery store in 1949, they were more focused on quality than quantity. Their motto from the beginning, that soon thereafter became their reputation, was "the customer is superior." Shoppers in the area learned that the best place to buy quality food in a clean store at a fair price was Superior Foods. Within two years of opening, the store's sales volume began to take off. After numerous additions and renovations, that first store had no room to grow. Superior decided to branch out, not with just one new store, but three. James Superior's special talent for training management and new employees allowed him to reproduce the renowned customer service developed in the first store. James established an extensive training program over the next ten years to give all his stores an almost uniform persona that people in the South really came to love and appreciate. By 1958, the company had grown to fifteen stores.

By 1980, Superior Foods was a regional chain of 200 supermarkets. The average store size had doubled to 20,000 square feet and sales had swelled to over $400 million, an increase of 100 percent in just the last four years. The company went public in 1985. By 1990, the company grew to be one of the top 40 merchandisers in the country with 1,200 stores across seven states, 15 distribution centers, 105,000 employees, and over 7,000 shareholders. During this time, Superior Foods implemented electronic scanning and expanded their basic grocery service to include delicatessens, bakeries, pharmacies, coffee shops, and in some locations, full department stores. Superior Foods was truly "superior" in the Southeast food services industry. Sales had reached $25 billion, net earnings approached $750 million, and the company was poised for its next major expansion program, westward as far as Colorado and northeastward to New England. …

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