In-Class Case: October 14, 2013
Zoom SnowBoards: Audit Planning Document
Please work in groups of two.
Read the Zoom Snowboard case (on Canvas). Please stop at page 1205 …just glance through page 1206. Then, please complete the template below. This audit planning case is worth 5% of your grade. It requires you to be familiar with Chapters 6, 8 and 9.
I only need one issue per row. The information must be specific (indicating that you have read the case) and not vague/ambiguous.
While this is an “in-class case”, you may finish this in any other space other than the classroom on 10/14/2013. There will be no “lecture” on 10/14/2013.
Submission date: 10/21/2013.
Potential Issue/Flag
Financial Reporting Risk
Impacts Acceptable
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Overstated net income implies assertion of occurrence, completeness and accuracy.
4. Supply Chain Issue: No internal controls for in-house manufacturing of snowboards
Raw material and finished goods inventory may be over/under-stated
AAR can decrease as risk of misstatements on the Balance Sheet increases. External users may rely heavily on reported assets. Over/under-statement of inventory implies assertion of existence, completeness, and valuation and allocation..
5. Business strategy Issue: Expand business product line (apparel product) → Company’s operation is effected Affect the risk of material misstatement that related to inventory and other related assets IR goes up: associates with the changing in nature of the company → the new line of product might not be successful
CR goes up: increase the size of the company → more internal control concern over new line of product’s inventories.
AAR goes down: risk of misstatement on the Income Statement increase Over/Under state inventory, net income, sales implies assertion of occurrence, completeness and accuracy
6. Revenue Recognition issue: TAS paid Zoom $500,000 for 5 year exclusive rights. The entire $500,000 was included in Zoom’s 3rd quarter results.
Risk for inflated revenue and net income, revenue being recognized when received instead of when earned.
AAR can decrease as risk of misstatements on the Income Statement increases. External users may rely heavily on reported Net
1.The Days Receivables increase, again effectively removing millions in cash from the facility and leaving it in the hands of the payers. Due to the accounting method used at the hospital (Provision for Doubtful Accounts is shown as an “expense” and does not directly reduce “Net Patient Revenue”), the effect of the $4,224 audit adjustment was not as apparent in this ratio.
The next step is to inspect the accounting estimates made by the company. It is another area in which misstatements can easily be occurred. In this area, we will also identify any potential trends that may be offsetting the financial
New accounting rules will affect the company’s revenue recognition in the upcoming year. Many companies such as Rolls-Royce Holdings will be affected by this change. Rolls-Royce Holdings books its revenues even before its services performed. For instance, they sell large engines and maintenance service, and Rolls-Royce Holdings booked the revenue even 1.5 years in advance. They will no longer able to book this unperformed revenues for the upcoming year. The investors will have a better picture on the firm’s revenues based on the new revenue recognition. Some sectors, such as telecommunications, media and pharmaceuticals, are expected to be affected more than others, because the firms recognize revenues before they perform the services. Moreover,
We believe that each set of data has its strengths and weakness. The balance sheet data available for Pinnacle Manufacturing is extremely helpful in evaluating whether certain income statement items could be misstated. As an example, to know the trend in the asset Accounts Receivable: Trade made evaluating the income statement item Bad Debt expense easier. As a result, the financial data for the parent Pinnacle could be cross-referenced more easily.
Because the case is nondirected, there is ample opportunity for students to be creative in their solution approaches. Thus, it is impossible to provide a single solution here that is applicable to every student's work. As a starting point in evaluating students' solutions, we provide a solution that is based on the questions contained in online Case Questions section. It is important, however, to recognize that this solution is merely a starting point, and student work should be graded at least as much on the
1. The implication of this factor is there may be an increased risk of misstatement of bad debt expense and the allowance for bad debts. The auditors may decide to assign a more experienced auditor to this audit area. In addition, the auditors will decide to increase the evidence related to the adequacy of the
| Implication: Increased risk of misstatement of bad debt expense and allowance for bad debts. Response: Assign more experienced auditors to this area. Increase evidence.
E. Why does the auditor not use the same tolerable misstatement or percentage of account balance for all financial statement accounts?
to be the same as the division’s existing business. However, to enter the clothing industry could be a
Throughout time, the progression and evolution of snowboarding has increased greatly. It has gone from non existence in the late 1970’s, to one of the most watched action sports in a matter of thirty-five years. The upward takeoff and popularity of snowboarding relies on two people, Jake Burton and Shaun White. Jake Burton back in 1977 had the vision for what snowboarding would be, but Shaun White had what it took to manifest that vision. Evidence has shown that time brings change in sports, history has repeated itself with snowboarding, this history reflects the time & changes that has occurred in America.
Snowboarding is one of the most enjoyed international pastimes. It presents you with this feeling of freedom and raw power as the cold air hits your face while you carve down the almost vertical mountain face dropping over steep clips and carving trough trees. These are just a few reasons why so many people internationally flock to the mountains to partake in this sport. Snowboarding provides people an escape from there comfort zone by pushing them to take on risks they would never have thought off before.
Accounting transactions are professional occasion that has either a positive or negative budgetary impact on the financial statements. One impact of transactions in a financial statement will increase or decrease the accounts contingent on the transaction that has taken place. The history of revenue that has come or gone from the business will be shown on both financial statements and accounting transactions. Many businesses make several transactions daily. Errors can have a negative impact on financial statements, because the facts come from the accounting transactions
The profits have increased for the company with the custom line accounting for 60% of volume and 75% of dollar sales according to this case study. The standard line has seen a continued increase in sales as well. What comes with the increased profit due to the increased manufacturing is the need to put higher amounts of capital into storing the higher inventory. With the company being at capacity, the lead times may not be meeting consumer demands either. The expansion that is needed would initially cost Chad’s Creative Concepts greatly. Without some type of expansion (which would most likely require a new plant), soaring inventory costs will need to be attended to.
A management dashboard developed with the help of SAP shows how smoothly a critical process is running at a certain point in time. Information from the dashboard helps Burtons users identify inconsistencies a problems that should be monitored more closely.
It can also be explained why the accountant will choose lower assets, lower profits and higher liability value. It can be explained as it is better to be able to pay off all losses and earn no profit than pay an interest on profit you haven’t earned.