Case 1.3 Just for Feet

1008 WordsOct 17, 20125 Pages
#1. Common-Sized Statements. Just for FEET, Inc. | Balance Sheet | Years ending Jan 31st | 1996 | 1997 | 1998 | Current Assets: | Cash & Equivalents | 36.93% | 18.40% | 1.80% | Marketable Securities AFS | 9.04% | 0.00% | 0.00% | Accounts Receivable | 1.74% | 3.53% | 2.74% | Inventory | 35.47% | 45.97% | 58.01% | Other Current Assets | 0.56% | 1.50% | 2.65% | Total Current Assets | 83.75% | 69.40% | 65.20% | Property & Equipment, net | 14.61% | 21.08% | 23.29% | Goodwill, net | 0.00% | 8.05% | 10.31% | Other | 1.64% | 1.46% | 1.19% | Total…show more content…
First, the inventory account increased from 35.47% of total assets in 1996 to 58.01% in 1998, which was uncharacteristically large. Second, the cash accounts and marketable securities decreased significantly. Finally, long term debt increased enormously over the three years. These items are major red flags for business operations. #2. Internal Control Risks Inherent limitations and potential fraud are a couple of internal control risks that are common among large, high-volume retail stores. Even if a well-designed internal control system is in place, the employees using it are ultimately the deciding factors in its effectiveness. The audit planning decisions should carefully plan to test internal controls for weaknesses concerning these areas. #3. Inherent Risk Factors. In a highly competitive industry there can be many inherent risk factors embedded in a company. Two factors that would affect audit planning decisions could be complex valuation issues and related party transactions. Valuation issues may lead the audit team to request more
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