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Question: Auditors commonly find themselves facing situations


Auditors commonly find themselves facing situations in which they must persuade client executives to do something they absolutely and resolutely do not want to do. When all else fails, auditors may be forced to use a tactic that clinical psychologists, marriage counselors, parents of toddlers, and other interpersonal experts typically frown upon; namely, the old-fashioned “if you don’t cooperate, I will punish you” threat. In the mid-1990s, an exasperated team of Grant Thornton auditors resorted to threatening a stubborn client executive to goad him into turning over key documents that had significant audit implications. The executive eventually capitulated and turned over the documents—which resulted in even more problems for the auditors.
The Brothers Greenberg
For decades, Jack Greenberg oversaw a successful wholesale meat company, a company that he eventually incorporated and named after himself. 1 Jack Greenberg, Inc., marketed a variety of meat, cheese, and other food products along the Eastern Seaboard of the United States from its Philadelphia headquarters. Jack Greenberg’s failing health in the early 1980s prompted him to place his two sons in charge of the company’s day-to-day operations. After their father’s death, the two brothers, Emanuel and Fred, became equal partners in the business. Emanuel assumed the title of company president, while Fred became the company’s vice president. The two brothers and their mother made up the company’s three-person board of directors. Several other members of the Greenberg family also worked in the business.
Similar to many family-owned and -operated businesses, Jack Greenberg, Inc. (JGI), did not place a heavy emphasis on internal control. Like their father, the two Greenberg brothers relied primarily upon their own intuition and the competence and integrity of their key subordinates to manage and control their company’s operations. By the mid-1980s, when the privately owned business had annual sales measured in the tens of millions of dollars, Emanuel realized that JGI needed to develop a more formal accounting and control system. That realization convinced him to begin searching for a new company controller who had the expertise necessary to revamp JGI’s outdated accounting function and to develop an appropriate network of internal controls for the growing company. In 1987, Emanuel hired Steve Cohn, a CPA and former auditor with Coopers & Lybrand, as JGI’s controller. Cohn, who had extensive experience working with a variety of different inventory systems, immediately tackled the challenging assignment ofcreating a modern accounting and con-trol system for JGI.
Among other changes, Cohn implemented new policies and procedures that provided for segregation of key responsibilities within JGI’s transaction cycles. Cohn also integrated computer processing throughout most of JGI’s operations, including the payroll, receivables, and payables modules of the company’s accounting function. One of the more important changes that Cohn implemented was developing an internal reporting system that produced monthly financial statements the Greenbergs could useto make more timely and informed decisions for their business. Cohn’s new financial reporting system also allowed JGI to file…………………

1. Identify important audit risk factors common to family-owned businesses. How should auditors address these risk factors?
2. In your opinion, what primary audit objectives should Grant Thornton have established for JGI’s (a) Prepaid Inventory account and (b) Merchandise Inventory account?
3. Assess Grant Thornton’s decision to rely heavily on JGI’s delivery receipts when auditing the company’s prepaid inventory. More generally, compare and contrast the validity of audit evidence yielded by internally prepared versus externally prepared client documents.
4. Describe the general nature and purpose of a “walk-through” audit procedure. Are such tests required by professional auditing standards?
5. Identify audit procedures, other than a walk-through test, that might have resulted in Grant Thornton discovering that Fred Greenberg was tampering with JGI’s delivery receipts.
6. Once an audit firm has informed client management of important internal control weaknesses, what further responsibility, if any, does the audit firm have regarding those items? For example, does the audit firm have a responsibility to insist that client management correct the deficiencies or address them in some other way?


> Following are selected financial data for your client for the current year and corresponding data for the client’s industry.  Requirement 1. Write a memo to your client comparing his or her business to the industry averages and explain to the client

> You just returned from a meeting with your bank loan officer, and you were a little taken aback by his comments. You’ve been doing business with this bank for a number of years, and the officer always seemed happy with your company’s performance. This is

> Net income was $175,000 in 2014, $190,000 in 2015, and $209,000 in 2016. The change from 2015 to 2016 is an increase of ____ percent. a. 10 b. 9 c. 8 d. 19

> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Selected Financial Data starting on page 646. Now access the 2014 Annual Report for Under Armour, Inc. from the Internet. For instructions on how to access the report

> This case focuses on the financial statement analysis of Columbia Sportswear. Recall from this chapter that stakeholders use numerous ways to analyze and so better understand the financial position and results of operations of a company. Tools such as ve

> Robin Peterson, the CEO of Teldar Incorporated, was reviewing the financial statements for the first three months of the year. He saw that sales and net income were lower than expected. Because the reported net income and the related earnings per share w

> According to the Real World Accounting Video, a VC is a __________________. a. veteran communicator b. victorious commercialization c. venture capitalist d. vendor conduit

> According to the Real World Accounting Video, a VC is a __________________. a. veteran communicator b. victorious commercialization c. venture capitalist d. vendor conduit

> How is percentage change in a financial statement line item calculated?

> A company has experienced increases in accounts receivable and inventory turnover ratios and has net cash flow from operations that exceeds net income. All other things constant, what could you conclude about the company’s performance this year relative

> How are financial ratios used in decision making? a. They can be used as a substitute for consulting financial statements. b. They eliminate uncertainty regarding cash flows. c. They are only used in evaluating business liquidity. d. They help to

> What is a “red flag” with respect to financial statement analysis?

> Which statement is most likely to be true? a. An increase in inventory turnover indicates that inventory is not selling as quickly as it was. b. A decrease in inventory turnover indicates that inventory is not selling as quickly as it was. c. A change i

> How would you expect a recession to affect asset management ratios?

> Which of the following statements is true of financial statement analysis? a. Ratio analysis is more important than either horizontal or vertical analysis. b. Vertical analysis involves comparing amounts from one year’s financial statements to another y

> What are the major goals of each of the following types of ratios? a. Liquidity ratios b. Asset management ratios c. Solvency ratios d. Profitability ratios e. Market analysis ratios

> Rockport Company is experiencing a severe cash shortage due to its inability to collect accounts receivable. Which of the following would most likely identify this problem? a. Return on assets b. Current ratio c. Accounts receivable turnover d. Working

> What is benchmarking? What should a company that wishes to use benchmarking look for in establishing benchmarks?

> A business’s economic environment is a. how a business competes for customers, suppliers, and other critical resources. b. how a business is affected by the overall economy. c. how a business uses its business model to create a competitive advantage. d.

> In Chapter 11, we prepared a cash flow statement for Fitness Equipment Doctor, Inc. Now, we will analyze Fitness Equipment Doctor, Inc.’s financial statements using the tools we learned in this chapter. Following are the balance sheets for the months end

> The Financial Accounting Standards Board and the International Accounting Standards Board have identified the goal of comparability of financial statements as one toward which all companies should strive and consistency as the means of achieving that goa

> Cash is $12,000, net accounts receivable amounts to $18,000, inventory is $21,000, prepaid expenses total $3,000, and current liabilities are $37,500. What is the quick ratio? a. 1.44 b. 1.36 c. 0.80 d. 0.88

> What is the purpose of the common-size financial statement?

> Net working capital is a. a measure of the ability to meet short-term obligations with current assets. b. defined as current assets minus current liabilities. c. defined as current assets divided by current liabilities. d. both a and b.

> Which amount is the base amount for vertical analysis on the balance sheet?

> A statement that reports only percentages is called a ____ statement. a. comparative b. cumulative c. condensed d. common-size

> Which amount is the base amount for vertical analysis on the income statement?

> Horizontal analysis of a financial statement shows a. the relationship of each statement item to a specified base. b. percentage changes in comparative balance sheets. c. percentage changes in comparative income statements. d. both b and c.

> This concludes the accounting for Sensations Salon, Inc., that we began in Chapter 1. For this exercise, refer to the comparative balance sheet presented in the Continuing Exercise in Chapter 11.  Requirements 1. Prepare a horizontal analysis of the

> Let’s look at Dick’s Sporting Goods (Dick’s) one last time. Think about Dick’s and how everything you’ve learned comes together. Think about accountants reporting what Dick’s has, where it got its money, and what it has been doing to create value. Is Dic

> On May 19, 1987, a short article in the Wall Street Journal reported that ZZZZ Best Company, Inc., of Reseda, California, had signed a contract for a $13.8 million insurance restoration project. This project was just the most recent of a series of large

> In 1995, Canadian native Maria Messina achieved one of the most sought-after career goals in the public accounting profession when she was promoted to partner with Deloitte & Touche, Chartered Accountants, the Canadian affiliate of the U.S.-based Deloitt

> Cyrus McCormick revolutionized American agriculture in the mid-nineteenth century when he invented a mechanical reaper. His horse-drawn harvester would become the primary product marketed by McCormick Harvesting Machine Company. Decades later, Cyrus McCo

> After graduating from West Virginia University in 1984 with a degree in accounting and finance, Gregory Podlucky decided to work with his father Gabriel, who had a small business empire in western Pennsylvania. 1 The senior Podlucky’s business interests

> Paul Polishan graduated with an accounting degree in 1969 and immediately accepted an entry-level position in the accounting department of The Leslie Fay Companies, a women’s apparel manufacturer based in New York City. Fred Pomerantz, Leslie Fay’s found

> Clifford Hotte had a problem. His company had come up short of its earnings target. For the fiscal year ended April 30, 1995, financial analysts had projected that Health Management, Inc. (HMI), a New York–based pharmaceuticals distributor, would post ea

> In 1971, 25-year-old Thomas Shine founded a small sporting goods company, Logo 7, that would eventually become known as Logo Athletic. Shine’s company manufactured and marketed a wide range of shirts, hats, jackets, and other apparel items that boldly di

> 8:15 a.m., Saturday, October 31 “So, Dani, seriously, what exactly am I going to be doing today?” 1 “I am serious, Tyler. I’m not sure what I’m supposed to be doing much less what I’m supposed to have you do. Like I said … Katelyn hasn’t told me anything

> In March 2000, the Securities and Exchange Commission (SEC) began requiring public companies to have their quarterly financial statements “reviewed” by their independent auditors. The broad purpose of this new requirement was to improve the quality and c

> In August 2004, an Internet-based investment advisory service included the common stock of LocatePlus Holdings Corporation in its “Stocks to Watch” 1 alert. The advisory service touted the New Age business model of LocatePlus, a company whose headquarte

> In 1999, a group of private investors founded Celebrity Sports Network, Inc., a company that retained professional athletes and former professional athletes to sponsor “fringe” sporting events such as professional wrestling, competitive dancing, and roll

> As David Robinson works his way through the large, festive crowd, he keeps bumping into people he knows. All the while, Robinson is hoping that he will avoid the one person he doesn’t want to meet face to face. 1 Belot Enterprises’ several hundred employ

> Prior to the Internet, the Bank Rate Monitor served as the primary source of information for U.S. consumers searching for the best available mortgage interest rates and interest rates on certificates of deposit. Over time, Bankrate, Inc., the company tha

> Thursday, October 24, 1929, easily ranks as the most dramatic day that Wall Street has ever seen. 1 That day witnessed the beginning of the Great Stock Market Crash that over the following few years would result in an almost 90 percent decline in the Dow

> During the 1980s, CBI Holding Company, Inc., a New York-based firm, served as the parent company for several wholly owned subsidiaries, principal among them Common Brothers, Inc. CBI’s subsidiaries marketed an extensive line of pharmaceutical products. T

> Over the past few decades, hedge funds have become among the most controversial and largest investment vehicles on Wall Street. Critics of hedge funds argue that their high-risk investment strategies contributed significantly to the economic crisis that

> The Great Depression dealt a devastating blow to Billy Durant. During the depths of the Depression in 1936, Durant, a high school dropout who was born a few months after the outbreak of the Civil War in 1861, was forced to declare bankruptcy. Like mil-li

> Grand Theft Auto ranks among the best-selling video games of all time as well as one of the most controversial. 1 By the time Grand Theft Auto V was released in 2013, over 125 million copies of the video game had been sold worldwide since the original v

> Jack Nicklaus electrified sports fans worldwide in 1986 when he won the prestigious Masters golf tournament at the ripe old age of 46. Over the previous several years, the “Golden Bear” had been struggling to remain competitive with the scores of talente

> A desire to be their “own bosses” and a burning entrepreneurial spirit compelled John Orecchio and Paul Oliver to leave the ranks of well-paid, white-collar employees and strike out on their own. In February 2002, the two friends established a new invest

> Bernard Lawrence Madoff was born on April 29, 1938, in New York City. Madoff spent his childhood in a lower middle-class neighborhood in the borough of Queens. After graduating from high school, Madoff enrolled in the University of Alabama but transferre

> From 1962 to 1992, Ed McMahon served as the quintessential sidekick and straight man to Johnny Carson on the long-running and popular television program The Tonight Show. After leaving that program, McMahon stayed in the television spot-light for 12 year

> As a small child, Brooklyn native David Brooks loved horses. 1 In 1969, when he was 14 years old, Brooks went to work at a local racetrack as a groom to help support his family. Brooks loved the tough job that involved arriving at the racetrack in the w

> John and Mary Andersen immigrated to the United States from their native Norway in 1881. The young couple made their way to the small farming community of Plano,Illinois, some 40 miles southwest of downtown Chicago. Over the previous few decades, hundred

> Andrea Kimball has recently acquired a franchise of a well-known fast-food restaurant chain. She is considering a special promotion for a week during which hamburger prices would be reduced $0.40 from the regular price of $1.09 to $0.69. Local advertisin

> Dr. Barbara Benson is the head of the pathology laboratory at Barrington Medical Center in Mobile, Alabama. Dr. Benson estimates the amount of work for her laboratory staff by classifying the pathology tests into three categories: simple routine, simple

> A Votre Santé (AVS) is a small, independent winery owned by Kay Aproveche. Kay has a relationship with a grower who grows two types of wine grapes, a Chardonnay and a generic white grape. AVS buys the grapes at the point at which they have r

> Aramis Aromatics Company produces and sells its product AA100 to well-known cosmetics companies for $940 per ton. The marketing manager is considering the possibility of refining AA100 further into finer perfumes before selling them to the cosmetics comp

> Nordstrom, Inc. (http://www.nordstrom.com) and Saks Fifth Avenue (http://www.saksfifthavenue.com) are upscale retailers. Using the following sources, answer the questions below. • Each company’s history reported on its web page (from “About Us” at the c

> Describe the low-total-cost value proposition and provide your own example of a company that has successfully implemented this value proposition.

> Why does attempting to improve customer measures such as customer satisfaction, customer retention, customer profitability, and market share not necessarily constitute a strategy?

> Define and explain the role of measures, objectives, and targets, in the Balanced Scorecard strategy map.

> Why is a clear strategy vital for an organization?

> What is return on investment?

> Explain why the growing importance of intangible assets complements growing interest in the Balanced Scorecard.

> Why are both financial and nonfinancial measures necessary to manage a company’s strategy?

> What are four common pitfalls in developing a Balanced Scorecard?

> What is the nature of the objective(s) that nonprofit and government organizations are likely to put at the top of their Balanced Scorecard and strategy maps?

> What are several desirable characteristics for a Balanced Scorecard measure?

> What are the three components of the learning and growth perspective in the Balanced Scorecard?

> How do the time frames for financial benefits for improvements in the different categories of processes typically vary?

> How might a company link its strategy or customer value proposition to a focus on particular categories of processes in the Balanced Scorecard?

> What are some critical dimensions along which to measure regulatory and social processes in the operating processes part of the Balanced Scorecard’s process perspective?

> What are the four bases for setting a transfer price?

> What are operations management processes within the Balanced Scorecard’s process perspective, and what are some typical objectives for operations management processes?

> All of a Balanced Scorecard’s measures for processes should be fully controllable by people who perform the work in the processes. Do you agree with this statement? Explain.

> Explain how a Balanced Scorecard approach is helpful in identifying critical processes and evaluating the processes.

> Describe the customer solutions value proposition and provide your own example of a company that has successfully implemented this value proposition.

> Describe the product leadership value proposition and provide your own example of a company that has successfully implemented this value proposition.

> Describe two broad approaches that companies can use to generate additional revenues.

> What are the two basic approaches to improving a company’s financial performance?

> What are the four measurement perspectives in the Balanced Scorecard?

> What is a Balanced Scorecard?

> What two important sub processes does managing innovation include?

> What is a soft number in accounting?

> How are innovation processes in the process perspective linked to the Balanced Scorecard’s customer and financial perspectives?

> What are the three important objectives for a company’s customer management processes within the Balanced Scorecard’s process perspective?

> What four categories of processes are useful in developing the process perspective measures for a Balanced Scorecard?

> Describe two broad approaches that companies can use to improve productivity.

> Refer to the In Practice description of Teach for America on pages 44–45. How can Teach for America use its strategy map and scorecard to advance its mission and strategy?

> Refer to the In Practice description of Infosys on page 24. Required (a) Why would a company with Infosys’s history find the Balanced Scorecard important for managing its growth and monitoring its performance? (b) What customer measures would you recomm

> Why did Pioneer Petroleum, a company following a differentiation strategy, have so many process objectives and measures relating to cost reduction and productivity?

> How does economic value added differ from residual income?

> How is residual income computed?

> Why do organizations allocate costs to responsibility centers?

> A company’s chief executive officer (CEO) wanted his company to develop a Balanced Scorecard. After giving considerable thought to who should lead the development, he selected the head of the information technology group because the Balanced Scorecard wo

> Why do organizations allocate revenues to responsibility centers?

> What is a transfer price?

> What is the difference between internal financial control and external financial control?

> What does financial control mean?

4.99

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