You selected 30 invoices entered in the accounting records near year-end: A common sized balance sheet and income statement as well as the classic ratios are attached in Excel and the commentary discusses which of these would likely have signaled or should have signaled higher audit risk.
This was done to avoid any appearance of conflict of interest. Assume that you were a member of the Crazy Eddie audit team in You selected 30 invoices entered in the accounting records near year-end: Also, the audit opinion can be affected because the auditing firm wants to keep the client happy in order to maintain the lucrative consulting business.
The gross margin is improving during a period of intense competition and the operating profit margin, return on assets and return on equity are all getting worse. In situation like this, auditors need to use professional skepticism and increase the assessment of fraud risk.
Crazy Eddie was rapidly expanding the number of stores and was not anticipating what could happen in the future. Also, the auditors could contact the supplies of the inventory to request the missing invoices in order to verify the existence of the invoices.
The decrease in accrued expenses could be the result of the company artificial inflating its revenue by releasing accruals and is a red flag for auditors. One draw back of this practice is that some individuals believe that this practice undermines auditor independence, audit quality and the quality of financial statements.
Short-term debt increased from. The inventory turnover has shifted and that would be another signal for attention. How can this practice potentially affect the quality of independent audit services?
If no there is no satisfactory conclusion to the ten missing invoices, auditors should report the problem to auditing committee. Compute key ratios and other financial measures for Crazy Eddie during the period I have highlighted the lines in the attached Excel spreadsheet where I have common-sized the balance sheet and income statements and computed two years of ratios.
At the same time cash on hand dropped from 34 in to 3. We will write a custom essay sample on Crazy Eddie Essay Order now Competition greatly increased and Crazy Eddie did not have the funds to pay suppliers for merchandise, which in turn causes potential customers to go elsewhere for their needs.
When gross margin improves considerably, the overall picture usually gets better. In addition, more and more retailers squeezed into the increasing competition, resulting in smaller profit margins. Analytical procedures involve evaluations of financial statement information by a study of relationships among financial and nonfinancial data.
Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: By understanding the process, the auditors can then determine if the invoices could have been simply lost in the scuffle.
The age of the inventory was also a red flag that should have been noticed. Methods used by the client to measure and review performance.
Assume that client personnel were unable to locate 10of these invoices.Lecture #3: Assurance Frameworks, Analytical Procedures Last class Discuss how changes in an audit client’s industry should affect audit planning decisions.
Relate this discussion to Crazy Eddie. • Assume that you were a member of the Crazy Eddie audit team in You were. Discuss how changes in audit client’s industry should affect audit planning decisions.
Relate this discussion to Crazy Eddie. mi-centre.comn what is implied by the term lowballing in an audit. Discuss how changes in an audit client’s industry should affect audit-planning decisions.
Relate this discussion to Crazy Eddie. According to the second standard of field work of generally accepted auditing standards, the auditors must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of.
Discuss how changes in an audit client’s industry should affect audit planning decisions. Relate this discussion to Crazy Eddie.
Relate this discussion to Crazy Eddie. When an industry undergoes changes of a large magnitude quickly, the internal controls need to be evaluated to ensure they encompass all of the changes fully%(7).
The audit risk for Crazy Eddie would be very high. Some of the major red flags were inventory turnover in 4 years went from to That shows that some of the accounting was incorrect. ACCT Crazy Eddie Case The retail consumer electronics industry was undergoing rapid and dramatic changes during the ’s.
Discuss how changes in audit client’s industry should affect audit planning decisions. Relate this discussion to Crazy Eddie.Download