Feet case study Essay

The item that seemed to genuinely c whole my financial aid as cosmos a problem is most of the dineroability ratios. Starting with the Gross Profit margin, it seems at the moment that Just Feet sack ups $41.62 in 1999 and in 1998 $41.53 in profit, and it cost the participation more to catch than what they are making in profit. This shows that they need to dismount their costs in making their product to be more profitable. The comp all has not nonetheless r individuallyed a breakeven point. We too see that in the two geezerhood of 1998 to 1999 that at that place was a decrease in profitability a decrease in return of equity. This essence that the club is making less profit for each dollar that the shareholders form invested in the company. This ratio shows us how efficiently the company is working, and it shows how efficiently care is using the funds that shareholders have contributed to the company. So in doing these analysisfor Just for Feet Inc. I would be ques tioning the power of circumspection for handling the income that shareholders have contributed. I would also extremity to look for nearly at how the company is producing, the cost they are having is juicyer than the profit, for that reason we would want to tax how they could lower cost to fixate the profit more profitable for the company. Question 2.Just for Feet operated queen-size, spunky-volume retail stores. Identify internal control bumps common to much(prenominal)(prenominal) a business. How should these dangers affect the study planning purposes for such a client? One of the lay on the lines that a turgid retail store like Just for Feet Inc. could rein in internal controls is in the area of distinguish Control. The largest concern is that what is stated on the Financial statements really exist. It is pregnant to evaluate this jeopardy so that a company can see if thither is any thievery by employees and to make current that on its balance sheet it shows an accurate report of inventory. some other area of run a danger in a high volume retail store would be the resign of handling coin.Since in that respect is such a high perturbation of cash in a large retail store, in that location needs to be correct internal controls in place that will save false accounts receivable, and a misre bearation of revenues. Another risk that needs to be evaluated is the worry operations and how they overcompensate and divide responsibilities within the location. In retail stores there can be a high turnover of battalion, for that reason management needs to make sure that there are always the worthy fraction of duties, they need to make sure all paperwork is powerful recorded and accounted for. As to how it will affect the audit plan, the attender needs to make sure that there is proper division of duties, needs to test to make sure values are correct and there are no misstatements. The need to look closely at the inventory, write up f or the proper value on hand as well as the proper items in stock. Question 3Just for feet operated in an extremely agonistic industry, or sub-industry. Identify intrinsical risk factors common to businesses facing such competitive conditions. How should these risks affect the audit planning closes for such a client? An inherent risk is when a company is susceptible to a misstatement in financial statements. It is the righteousness of an auditorto carry reveal audits that will make these risks low to nonexistent. An example of this is segregation of duty. IN a highly competitive business profit and big revenue will key out you as being the best, a possible risk is the lack of force- extinct that keeps expenses low giving people double duties, but creating an inherent risk. If we do not have management signing off on purchase orders, and others account for the product being received and another accounting for it being sold and another confirming the consequence of the process in the accounting of such items by dint of and through with(predicate) monthly closings or such. An auditor would want to evaluate that management has the experience necessary to carry out these plans. And those that are in the mentioned roles also would be experienced. If there is a high turnover in these positions it could be a sign of fraudulent behavior because people who are trust worthy would not tab in a place to do something dishonest. entirely these pillow slip of changes should be evaluated by the auditor. Question 4Prepare a comprehensive list, in a bullet format of the audit risk factors present for the 1998 Just for Feet audit. Identify the basketball team audit risk factors that you believe were most critical to the successful period of that audit. Rank these risk factors from least to most grave and be prepared to def culmination your rankings. Briefly explicate whether or not you believe that the Deloitte auditors responded appropriately to the five criti cal audit risk factors that you identified.The emphasis that management made on reaching the earnings goals at whatever cost. The near year end legal proceeding that Just for Feet was engaged in The law cash resources of the companyThe display case of business strategy that the management of Just for Feet used The way that the company always kept the stock termss on the high end The increase in inventory at the end of both years.The vendor confirmations not coming through to confirm transaction by Just for Feet.The risk factors that were most significant to the audits completion would be the organic Risk, control risk, audit risk and detection risk. An analyzerisk is when an auditor answers the following questions Is there a risk of fraud? Is this risk related to the complexity of transactions? Does it include and significant transaction out of the normal course of business? Karl M Johnston, (Auditing 2014) states that whether the risk is related to recent significant economic accounting, or other developments and, it requires specific attention. In my ranking of more important to least important in risk factors I think that they are generally all equally important. Inherent risk are important because it will evaluate if there has been some fictitious character of theft, or if there was anything changed in the form of a non-routine transactions or a complex transaction. variant of like what Just for Feet did when raised the inventory at the end of two years. The Control risk is also of equal importance because it is relates to a misstatement being halt with internal controls in place. The fact that Just for Feet was allowing misstatements to be written by outside vendors to delegate to the auditor shows that the lack of internal controls within the Just for Feet entity allowed this type of poor fraudulent management to occur. This would be assessed through assertion level checks like Valuation, existence, presentation, completeness and rights and obli gations disclosures. In my thought Deloitte did not respond appropriately to these risk factors. though they may have seen the risk factors, though they maxim the misstatements and questioned them, they did not act accordingly. If they had the SEC would not have fined them. Question 5Put 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 Deloitte & Touche? Before responding, identify the parties who will be affected by your decision?The people who would have been affected by my decision is the shareholders, others who worked for the company, the public, management and executives of the company, even those who were customers of Just for Feet. But even then with all those people at risk I would have said no and risked losing my play by being fired. My ethical position to draw together to what is right is what would require me to make this decision. To be asked to do something fraud ulent would make me want to separate myself from this type of management. At theend I would pay the price for my bad choice.REFERENCEShttp//www.investinganswers.com/financial-dictionary/financial-statement-analysis/return-equity-roe-916 retrieved 10/2/14http//www.dummies.com/how-to/ discipline/how-to-assess-inventory-management-control-risk.html retrieved 10/3/14http//accounting-simplified.com/audit/ intro/audit-assertions.html retrieved 10/5/14