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Ocean Manufacturing Case 1.1

In: Business and Management

Submitted By nmrichardson
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1. Five procedures an auditor should perform in determining whether to accept a client. a. The firm’s independence in fact and in appearance. (required) b. Qualifications of the firm to undertake the engagement. c. Management of the reporting entity is honest and not involved in illegal acts. (required) d. The client’s financial reporting system, and internal control system, will provide fairly presented financial statements. e. Communicate with the previous auditor after receiving permission from the client. This can be found in AU315. (required)

2. Ratios
Return on Equity
2011 2010 2009 8.94 7.11 6.28

Return on Assets 2011 2010 2009 4.54 3.77 3.39

Assets to Equity
2011 2010 2009
1.97 1.88 1.85

Accounts Receivable Turnover
2011 2010 2009
11.69 13.11 14.02

Average Collection Period
2011 2010 2009
31.23 27.85 26.03

Inventory Turnover
2011 2010 2009
6.08 4.51 3.47

Days in Inventory
2011 2010 2009
59.9 80.88 104.98

Debt Ratio
2011 2010 2009
.49 .47 .46

Debt to Equity Ratio
2011 2010 2009
.97 .88 .85

Times interest earned
2011 2010 2009
4.7 4.24 6.23

Current ratio
2011 2010 2009
1.85 1.91 1.69

Profit margin
2011 2010 2009 5.5 6.0 4.7

Differences to be aware of: 1. Low return on equity in comparison. 2. Low return on assets in comparison. 3. Accounts receivable is high in comparison. 4. Inventory turnover is low in comparison. 5. The profit margin is low in comparison.

3. Nonfinancial matters to consider A. Management turnover. There could be disagreements with ethical matters, which are causing managers to leave. B. The accounting and control systems are complicated. The transition hasn’t gone smoothly, staff still needs to be retrained, and there are problems with documentation of inventory,...

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