Essay on Ocean Manufacturing

To begin the audit, a review of previous 2 years of financial statements, provided by current or previous auditors for any unusual business transactions relating to revenue.

Assuming that the end result is an unqualified audit report, outline the primary responsibilities of the audit firm after it issues the report in question.

First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.

Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063.94 million at the end of FY2010, a 48.09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25.07% - from US$1,770.02 million at the end of FY2009 to US$2,213.72 million at the end of FY2010. Following this, the company’s current ratio declined from 1.27 at the end of the FY2009 to 1.07 at the end of FY2010. A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations.

1. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence.

The purpose of the predecessor-successor auditor communication is to inform the successor auditor of the nature of the industry and specific attributes of the client to help determine if the successor auditor wants to take them on as a client. It is the responsibility of the successor auditor, with the client’s permission, to initiate communication with the predecessor

This set of data belongs to the online retailer industry. The most significant categories that helped with our decision was the low inventory for a retail business and the relatively high inventory turnover. The reasoning behind the high inventory turnover was because the goods were allowed to sit in storage until sold because of the online aspect of the business. We were also able

2. Auditors are required to consider evidence obtained and accumulated throughout the audit and make an overall evaluation as to whether substantial doubt exists with respect to the ability of the client

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

In addition if an auditor requires any interpretations of the documents the client must assist the auditor in attaining the needed understanding of the records.

The auditor’s responsibility is not to evaluate a client’s business model but to have a sufficient understanding of the entity. An auditor needs a sound and comprehensive understanding of the client’s business and industry to develop valid expectations about financial-statement assertions.

Low Inventory Trunover: the product sits 255 days on average in inventory before being sold;

Auditors should plan the audit so that the engagement is conducted in an effective manner.

A company must pay attention to the number of days of its sales it holds in inventory to determine the amount of time it will take to convert the inventory on hand into sales (Gibson, 2011). As shown in Exhibit 3, 3M increased from 81.74 days of sales in inventory in 2007 to 82.20 days in 2008. At face value, an increase suggests a slight negative trend for 3M as it is holding onto more inventory, taking longer to sell

The reason for the predecessor-successor auditor correspondence is to advise the successor auditor of the way of the business and particular ascribes of the customer to figure out whether the successor auditor needs to go up against them as a customer. It is the obligation of the successor auditor, with the consent of the client, to start correspondence with the predecessor auditor. The successor auditor needs to gather data on if there are any regions to give careful consideration to that are more inclined to misreports, the proficiency/adequacy of internal controls and if there is anything particular to run over with the administration or management of the company, how is the relationship with administration/ management of the company, if in case that they are consistent, and possibly most imperative, the main reason behind the switch.