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Cast1 Essay

1220 words - 5 pages

1. Identify four to six procedures auditors may perform as part of the client acceptance process. Are any of the procedures identified by you required by generally accepted auditing standards?
1. Review available financial statements, minutes of board of directors’ meetings prior, tax returns and other documents pertinent to the client’s operations.
2. Perform preliminary analytical review procedures to identify areas of high risk and to understand the nature of the client’s financial statements.
3. Determine whether the firm is independent with respect to the client. (required)
4. Communicate with the predecessor auditor. (required)
5. Tour the client facilities to learn of the nature ...view middle of the document...

Other distribution outlets offer substantially less growth opportunity.
d. The wine industry appears to have a bright future and the industry, as a whole, has significant growth opportunities in the US. Wine consumption is highest among adults 35-64 years of age, the generation that tends to have the greatest amount of disposable income.
e. Significant consolidation has taken place in the wine industry and the trend is likely to continue.
f. CA has entered into exclusive distribution agreements with outlets in several large metropolitan areas and is seeking similar opportunities in other areas.
g. The Summerfield family owns the winery and members of the family hold most management positions.
h. Rob Breeden became the winery’s CFO just two years ago after the company’s CFO of more than 15 years resigned. There are rumors that the resignation was in response to disagreements between the CFO and the president, Edward Summerfield, regarding the need for a new AIS.
i. The vice-president of winery operations, Jacques Dupuis, was accused of theft of trade secrets form a former employer, but the charges were ultimately dropped due to insufficient evidence.
j. CA implemented a new AIS some fourteen months ago. The new system is fully integrated with modules for purchasing and accounts payable, sales and accounts receivable, production and inventory, payroll, and the general ledger. Each of these modules provides data that are critical to the company’s operations. There has been some employee turnover due to continuing problems with the AP and AR modules.
k. Discussions with the predecessor auditor indicate that there were no significant disagreements, but the former partner-in-charge made the comment that Rob Breeden was “more aggressive than CA’s former CFO.”

3. Perform preliminary analytical procedures using the financial statements provided by the client. Calculate ratios for comparison to the industry averages provided and identify relationships or areas that may be of concern during the audit.

Industry Ratio
Chateau Americana

Current Ratio

27,076 /7,082 = 3.82

Accounts Receivable Turnover
21,945 / ((5,241 + 4,816) / 2) = 4.36

Average Days to Collect A/R
365 / 4.36 =

Inventory Turnover

11,543 / ((15,593 + 14,309)/ 2] = 0.77

Days in Inventory

365 / 0.77 =

Assets to Equity

42,029 / 27,718 = 1.52

Debt to Equity Ratio

14,311 / 27,718 = 0.52

Times Interest Earned

3,386 / 360 = 9.41

Return on Assets

5.56 %
7.61 %
(1,997 + 360) / [(42,029 + 38,322) / 2) =
5.9 %

Return on Equity

5.92 %
10.76 %
1,997 / ((27,718 + 25,721) / 2) = 7.5 %

Ratios for CA...

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