Case Study Of The Pinnacle Company

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1. The degree external users’ reliance on financial statements: The Pinnacle is a medium size business based on total asset and total revenue amount and the business is considering selling the Machine-Tech division which make external users moderately rely on Financial Statements. Also, the Pinnacle company is a privately held, but there is a large amount of debt which make financial statement be used extensively. 2. Likelihood of financial difficulties: Because the nature of Pinnacle’s operation which revolves around changing technology that make the business more risky than other business; specially, higher risk in bankruptcy. Item 1 in the planning phase of the audit raises a concern about the viability of Solar- Electro division since…show more content…
This affects account receivable, bad debt expense and allowance for uncollectible accounts. Realizable value and accuracy under balance related audit objective was affect, because company should make sure if the account balance be reduced and the amount included at correct amount. Item 6: There is no effect on inherent risk or affected account. Item 7: Inherent risk is there is a potential related party transaction which affect valuation of the transaction and may require disclosure as related party transaction. Because the Pinnacle vice president own the T-shirt company and Pinnacle use that T-shirt as uniform. Account affected include maintenance expense and account payable. Accuracy of audit objective was affected. Item 8: Inherent risk is indirectly affect by the turnover in the inventory audit department because the risk of fraudulent financial reporting increased. This situation probably cause by the upper management have fraud and then leave company, and this may also affect the auditor’s assessment of control risk. All accounts are affected since it relates to risk of fraudulent financial
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