Case Study Question Unit 3

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JUST FOR FEET, INC. CASE STUDY QUESTIONS 1) Prepare common-sized balance sheets and income statements for Just for Feet for the period 1996-1998. Also, compute key liquidity, solvency, activity, and profitability ratios for 1997-1998. Given these data, comment on what you believe were the high-risk financial statement items for the 1998 Just for Feet audit. 2) Just for Feet operated large, high-volume retail stores. Identify internal control risks common to such businesses. How should these risks affect the audit planning decisions for such a client? Some internal controls risks common to high-volume retail stores would be theft of inventory, inventory accounting methods, false accounts receivable confirmations, separation of…show more content…
Deloitte did propose an audit adjustment to increase the reserve, but the client rejected it and Deloitte did nothing about that. They also never questions or investigated. The next most important is the large increase in vendor allowance receivables. This is important because it was a huge increase that was recorded in just the last few weeks of the year. Deloitte responded properly by requesting supporting documentation for $11.3 million of undocumented allowances. However, did not do anything when they never received the information. Next is the nonstandard and ambiguous receivable confirmations. Deloitte accepted the letter instead of investing and looking for fraud. Next to last is the monthly booth income accounts. Deloitte did not perform further analysis to determine the basis and property of the booth income journal entries and just accepted the executive’s statement that they had no impact on net income, when in fact there were $9 million of nonexistent booth assets. Last was the emphasis on earnings. The CEO directed employees to increase the good and decrease the bad to meet his own earnings expectations and of Wall Street analysts. Deloitte needs to look at expectations of earnings and find out what areas could be risky for fraudulent financial reporting to meet those earnings. 5) Put yourself in the position of Thomas Shine in this case. How would you have responded when Don-Allen Ruttenberg asked you to send a false confirmation to

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