Tong Chai
MA82501 Spring 2012
Case 1.3 Just For FEET, Inc.

2. Just for Feet operated large, high-volume retail stores. Identify internal control risks common to such businesses. How should these risks affect the audit planning decisions for such a client?

For the large, high-volume retail stores, I identified the following internal control risks common to such businesses: * Management operating strategy is the top source of all the issues. Most retail stores are pretty decentralized and may not pay much attention to the detailed operating procedures, thus may lead to some potential opportunities for staffs to steal or break the rules. * Inventory is a big issue in large high-volume retail stores, particularly people may intentionally misstate the inventory when counting and valuing it in order to steal or manipulate the earnings. * Cash is also a potential problem for such businesses. The large high-volume stores also tend to have a high volume of cash and transactions as well as some petty cash, so the handling of cash and the cut-off of transactions near period end are issues. * High turnover of the staffs is another issue of retailing industry. Since many entry-level positions has a very high turnover and low pay, those workers may not get well trained and operate as designed
In planning the audit, the auditors should give extra attention to the controls surrounding cash and inventory, cut-off procedures, and the year-end inventory counts. Moreover, all of these control environment issues would increase control risk and so the audit procedures would have to be increased to offset these risks so that detection risk is adjusted to achieve the desired audit risk level.

3. Just for Feet operated in an extremely competitive industry, or sub-industry. Identify Inherent risk factors common to businesses facing such competitive conditions.