Premium Essay

Ocean Manufacturing Case 1.1

In: Business and Management

Submitted By nmrichardson
Words 1179
Pages 5
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,…...

Similar Documents

Premium Essay

Case 1.1

...s e c TIo n client acceptance C a s es inC lu de d in t his se Ction 1 3 1.1 Ocean Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . . The New Client Acceptance Decision InsTrucTor resource Manual — Do noT copy or reDIsTrIbuTe InsTrucTor resource Manual — Do noT copy or reDIsTrIbuTe ocean Manufacturing, Inc. The new client acceptance Decision ins tr uC t ional o b je C t ive s [1] To c a s e 1.1 Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt help students understand the process of considering a new prospective audit client and the factors that auditors commonly consider in making the acceptance decision. [2] To give students experience in computing and interpreting preliminary analytical procedures commonly used in obtaining an understanding of a prospective client during the client acceptance decision process. [3] To raise issues relating to auditor independence in the context of client acceptance, both in terms of financial interests and the provision of non-audit services. To illustrate the subjective and sometimes difficult nature of the judgments involved in the client acceptance decision, and to give students the opportunity to justify a recommendation on client acceptance in the presence of both significant positive and negative factors. [5] To help students understand how information gathered in the client acceptance process can help the auditor in planning the audit if the......

Words: 4495 - Pages: 18

Premium Essay

Ocean Manufacturing

...Case 1.1 Ocean Manufacturing, Inc.: The New Client Acceptance Decision Ocean Manufacturing, Inc. is recommended as a prospective audit client of Barnes and Fischer, LLP. I believe that Barnes and Fischer should accept the client because of Barnes and Fisher's opportunities in consulting and information technology (IT) development, Ocean Manufacturing, Inc.'s sound management/business model and past successful audits, and primarily, the growth potential of Ocean Manufacturing, Inc. following its planned IPO. Ocean Manufacturing has a favorable market position in the Home Appliance Industry. This is a market that Barnes and Fisher has not focused on and would be an "excellent opportunity for Barnes and Fischer to enter a new market." In addition to entering a new market, Barnes and Fisher would have multiple opportunities for consulting regarding Internal Controls and also in IT Development. Ocean wants advice and guidance for the IPO and troubleshooting its IT system. Barnes and Fisher's local IT Team is "confident they will be able to diagnose Ocean's Control Weaknesses and help Ocean overcome current difficulties." Currently, Ocean Manufacturing Inc. is not Publicly Traded, therefore, its Audit and Internal Controls have been more relaxed but still in accordance with PCAOB. Until the IPO occurs, Barnes and Fischer will be able to offer consulting advice, and according to the PCAOB, will be allowed to engineer the IT Control system after the IPO. The......

Words: 265 - Pages: 2

Premium Essay

Oceans Case

...Case 1.1 1) Five procedures an auditor should perform in determining whether to accept a client are an independence check, checking management integrity, the nature of disagreements, communication with previous auditor, and reason for auditor change. Communicating with the previous auditor, evaluating management integrity and the independence check are required by the auditing standards. 3) The following non-financial should be considered before accepting Ocean as a client are a high auditor turnover rate should be a major red flag and should be looked into. Also the new complicated computer system could effect the auditor getting all the information in a timely manner. There might be inadequate controls over the new system requiring more substantive tests. There is also a VP with a gambling problem and a new controller. Some of the non financial decisions are more important to consider than others. Like for example the fact that the client was hesitant to allow communications between auditors. This could be a cover up for a reason not to accept the client. 4) a) Barnes and Fischer will be able to provide help with the IT and financial statements audit according to the AICPA as long as they merely help implement and don't design the software. b) The situation doesn't violate the AICAP. This is because of rule 101 of the AICPA which says materiality is not to bw considered in a case of direct financial interest on the part of the auditor. If indirect......

Words: 261 - Pages: 2

Premium Essay

Ocean Manufacturing Case Solutions

...Acct 4080 Ocean Manufacturing Case 1. 1) Obtain and review financial information about the prospective client: annual reports, interim statements, registrations statements, Form 10-k’s, and reports to regulatory agencies. 2) Detailed criminal background checks of senior managers. 3) Evaluate the public accounting firm’s independence with regard to prospective clients. 4) Inquire of the prospective clients’ bankers, legal counsel, underwriters, analysts, or other persons who do business with the entity for information about the entity and its management. 5) Consider the need for individuals possessing special skills or knowledge to complete the audit (e.g., IT auditor, valuations specialist, industry specialist) 2. Overall, after calculating a few of Ocean Manufacturing ratios and comparing them with the industry, the company’s figures are not performing up to others in the industry. ROE = NI/Stockholder Equity (2011,2010)= 8.9% and 7.1% ROA = NI/Assets= 4.5% . 3.8% Both return on equity and assets are lower than industry ratios but are improving. Accounts Rec Turnover—could not calculate without % of credit sales from cash sales. Profit Margin = Operating income/ Sales(rev) = 5.5%, 6.0% PM are also low compared to the industry average. 3. There are a few non-financial items the company should consider. a) The VP of finance was charged with a misdemeanor related to illegal gambling. Raises questions about the tone at the top and the......

Words: 493 - Pages: 2

Premium Essay

Ocean Manufacturing

...1. Introduction Ocean Manufacturing Inc. is a home appliances manufacturer with a favorable market position looking to be listed at NASDAQ within the next few years. Apart from requesting an audit, B&F is asked to provide assistance with regard to the upcoming IPO and Ocean’s newly installed IT system. This paper is structured in two different memos. The first one elaborates on the evaluation of Ocean from five critical standpoints and concludes with an opinion on whether to accept the engagement. The latter one points out five critical factors, which have to be taken into account when the audit is accepted. 2. Independence review While establishing the audit team, independence requirements have to be fulfilled. It is crucial that all the individuals assigned to the audit are independent of Ocean. After conferring to the report of disclosed stock investments it turns out that a partner at the Salt Lake City office owns common stock in a venture capital fund which in turn holds shares in Ocean. The partner in question is not part of the audit team and the holding in Ocean represents a marginal share of the total funds’ holdings. Since the partner will not be in touch with the customer Ocean, and the amount of shares the fund has invested in Ocean is negligible, the authors can conclude that there are no independence issues at hand and Ocean could be accepted as a client. 3. Financial comparison When comparing the financial statements the first matter of concern...

Words: 2385 - Pages: 10

Premium Essay

Case 1.1

...Case 1.1 Intel A. The type of business in which Intel operates is world’s largest semiconductor chip maker. They develop advanced technology, primarily integrated circuits, for industries such as computing and communications. Their Integrated circuits are semiconductor chips etched with interconnected electronic switches. They also develop computing platforms, which we define as integrated hardware and software computing technologies that are designed to provide an optimized solution. They do this all based on their revenue. B. From the letters from the chairman and CEO the analyst can learn that Intel reported their best financial results in 2010. The broadband for intel products across all regions continued to grow. Operating income rose to 15.6% billion, which was a net income of 11.5 billion and earning shares rose to $2.01. Their use of recycling of factory reuse drove the cost down. Intel will need to be aggressive with keeping up with the modern technology such as smartphones, tablets etc. to continue to grow. The total dividend payout for 2010 was $3.5 billion. The new intel processor has increased the data center group revenue 35% over 2009. This information can help the analyst to see what type of revenue and how the revenue is coming in to help create a financial projects for next year. C. The audit opinion that Intel recieved was stated to be fairly accurate to Intel financial position for the past 3 years. They stated that the information......

Words: 404 - Pages: 2

Premium Essay

Case 1.1: Ocean Manufacturing, Inc.

...Case 1.1: Ocean Manufacturing, Inc. 1. Identify five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards? (check slides) - Obtain and review available financial information - Inquire of third parties about integrity of prospective client and its management - Consider circumstances that require special attention, unusual business or audit risks - Consider the technical competency of potential audit staff and supervision * AS No. 10: Supervision of the Audit Engagement * AU 210 Training and Proficiency of the Independent Auditor - Consider if acceptance would violate regulatory or the Code of Professional Conduct 2. Using Ocean’s financial information, calculate relevant preliminary analytical procedures to obtain a better understanding of the prospective client and to determine how Ocean is doing financially. Compare Ocean’s ratios to the industry rations provided. Identify any major differences and briefly list any concerns that arise from this analysis. Industry Industry 2011 Standards 2010 Standards ROE 8.94% 20.33% 7.11% 26.22% ROA 4.54% 6.62% 3.78% 8.10% Assets to Equity 1.97 3.30 1.88 2.82 A/R Turnover 11.69 7.49 13.11 6...

Words: 1881 - Pages: 8

Premium Essay

Case Study 1.1

...Case 1.1 Diseases of the Skin and Eyes You are out to coffee with your friend Diane, when she confides that she and her husband Ted are thinking of starting a family. She goes on to say that she has just come back from a checkup with her OB/GYN. “The doctor said I am healthy and everything,” she says, “but she wants to see my immunization records, to make sure I have been vaccinated for rubella before I get pregnant.” You nod. Diane wants to know why this vaccination would be important for her. 1. What is rubella? Rubella (German measles) is an infection caused by the rubella virus. Although it most commonly occurs in young children, it can affect anyone. The illness is usually mild. However, rubella in a pregnant woman can cause serious damage to the unborn child. 2. Why would Diane’s doctor be concerned about Diane’s immunity to rubella? If a pregnant women has rubella, the virus is likely to cause serious damage to the unborn child or cause a miscarriage. Rubella can lead to damage to the heart, brain, hearing and sight. The baby is likely to be born with a very serious condition called the congenital rubella syndrome. Diane thanks you for your clear explanation. “I probably won’t be able to find my immunization records: you know I wasn’t raised in the U.S.” But Diane is not worried. “I think I had rubella as a child. I remember being very sick with a rash, high fever, and white spots in my throat. I even had to be in the hospital for a......

Words: 424 - Pages: 2

Premium Essay

Ocean Manufacturing

...Ocean Manufacturing Inc. - The New Client Acceptance Decision What non-financial matters should be considered before accepting Oceans as a client and why? - Most of Barnes and Fischer’s audit clients are in the healthcare services industry and the company has never had a client in the small appliances industry. The engagement presents an excellent opportunity for the company to enter a new market and expand its reputation, especially if Ocean goes public in the future. However, auditors need to examine whether they have the required professional competence to provide the service since the company has no previous experiences in the industry. - Ocean is planning to go public and expand aggressively national markets. There are many hints throughout the case that management is willing to aggressively manipulate its financial statements in order to achieve better results. With the plans of an IPO, the risk of manipulation is even greater. According to SEC, auditors are liable for third party losses if there is false or misleading information in the audited statements in an IPO. Thus, a great deal of attention should be paid on this issue in order to avoid information risk and legal risk. - The auditee’s relationship with its previous auditor seems suspicious. Even though management of Ocean claimed that the dissolution of the relationship was due to lack of understanding of Ocean’s business environment, the company should still be concerned. Ocean was hesitant to permit the......

Words: 632 - Pages: 3

Premium Essay

Ocean Manufacturing, Inc Case

...To: Jane Hunter, Audit Partner From: Date: July 2, 2015 Subject: Audit Engagement Acceptance of Ocean Manufacturing, Inc. I am writing this you this memorandum to inform you of my recommendation as to whether to accept the audit engagement of Ocean Manufacturing, Inc. or decline. The discussion below talks about the use of client acceptance factors significant in arriving at my conclusion. It is my recommendation to not accept Ocean Manufacturing, Inc. (Ocean) as an audit client based on the significant client acceptance factors in conjunction with the analysis of both financial information and nonfinancial matters. Relevant Facts * Ocean Manufacturing, Inc. will be Barnes and Fisher’s first home appliance industry client. * Ocean asked Barnes and Fisher to assist in continuing the development of Ocean’s IT system. * Ocean is having issues maintaining a proper inventory and cost tracking system, receivables billing and aging, payroll tax deduction, payables, and balance sheet account classifications. * Barnes and Fisher is unfamiliar with Ocean’s IT system. * Ocean is requesting the firm’s services after its December 31 fiscal year –end. * Ocean has had some management turn over by both the vice president of operations and controller due to “personal issues.” * Ocean has changed auditing firms three times over the past 12 years. * Ocean audit trails during 2014 were not kept intact due to system failures and errors made by untrained......

Words: 904 - Pages: 4

Premium Essay

Ocean Manuf Case Study

...Ocean Manufacturing Case Solutions Acct 4080 Ocean Manufacturing Case 1. 1) Obtain and review financial information about the prospective client: annual reports, interim statements, registrations statements, Form 10-k’s, and reports to regulatory agencies. 2) Detailed criminal background checks of senior managers. 3) Evaluate the public accounting firm’s independence with regard to prospective clients. 4) Inquire of the prospective clients’ bankers, legal counsel, underwriters, analysts, or other persons who do business with the entity for information about the entity and its management. 5) Consider the need for individuals possessing special skills or knowledge to complete the audit (e.g., IT auditor, valuations specialist, industry specialist) 2. Overall, after calculating a few of Ocean Manufacturing ratios and comparing them with the industry, the company’s figures are not performing up to others in the industry. ROE = NI/Stockholder Equity (2011,2010)= 8.9% and 7.1% ROA = NI/Assets= 4.5% . 3.8% Both return on equity and assets are lower than industry ratios but are improving. Accounts Rec Turnover—could not calculate without % of credit sales from cash sales. Profit Margin = Operating income/ Sales(rev) = 5.5%, 6.0% PM are also low compared to the industry average. 3. There are a few non-financial items the company should consider. a) The VP of finance was charged with a misdemeanor related to illegal gambling. ......

Words: 318 - Pages: 2

Premium Essay

Ocean Manufacturing

...Ocean Manufacturing, Inc. การตัดสินใจรับงานสอบบัญชี วัตถุประสงค์การเรียนรู้ 1. เข้าใจประเภทของข้อมูลที่เกี่ยวข้องกับลูกค้าการตรวจประเมินที่คาดหวังไว้ 2. ระบุขั้นตอนที่ผู้สอบตัดสินใจยอมรับลูกค้าที่คาดหวังไว้ 3. ระบุและประเมินปัจจัยที่สำคัญต่อการตัดสินใจรับงานสอบบัญชี 4. เข้าใจกระบวนการในการสร้างและแสดงให้เห็นถึงข้อเสนอแนะที่เกี่ยวกับการรับงานสอบบัญชี บทนำ บริษัทบัญชีของ Barnes และ Fischer เป็นบริษัทตรวจสอบบัญชีรับอนุญาตแห่งชาติขนาดกลาง ปัจจุบันมีหุ้นส่วนที่เป็นผู้เชี่ยวชาญมากกว่า 6,000 คน ที่จ่ายเงินเดือนให้สำหรับปี1994 ส่วนใหญ่บริษัทจะให้บริการตรวจสอบและบริการด้านภาษี แต่เมื่อเร็วๆนี้ก็ประสบความสำเร็จในการสร้างระบบสารสนเทศ ในการให้คำปรึกษาทางธุรกิจสำหรับลูกค้าทั้งที่ไม่ได้รับการตรวจสอบและที่รับการตรวจสอบ ที่ไม่ได้จดทะเบียนในตลาดหลักทรัพย์ ในช่วงกลางเดือนมกราคม 2012 คุณได้เลื่อนตำแหน่งเป็นผู้จัดการฝ่ายตรวจสอบคนใหม่ในสำนักงานของ Barnes และ Fischer ที่ตั้งอยู่ในตะวันตกเฉียงเหนือแปซิฟิก คุณดำรงตำแหน่ง Senior Audit มาแล้ว 3 ปี จากการที่ได้ร่วมงานกับ Barnes และ Fischer มา 5 ปีแล้ว งานแรกของคุณคือเป็นผู้จัดการฝ่ายตรวจสอบบัญชี ที่ช่วย Audit Partner ในการตัดสินใจรับงานสอบบัญชี Partnerได้อธิบายให้ทราบถึงสิ่งที่ลูกค้าคาดหวังว่าบริษัทเป็นผู้ผลิตขนาดกลางเกี่ยวกับเครื่องใช้ภายในบ้านเล็กๆ เมื่อเร็วๆนี้Partnerได้พบกับประธานบริษัทที่ห้องประชุมท้องถิ่น ประธานชี้ให้เห็นว่าหลังจากการประชุมบริษัทได้ตัดสินใจที่จะยุติความสัมพันธ์กับผู้สอบบัญชีในปัจจุบัน ประธานอธิบายถึงเหตุผลหลักที่ยุติการสร้างความสัมพันธ์กับบริษัทตรวจสอบบัญชีรับอนุญาตแห่งชาติ เพราะบริษัทวางแผนที่จะเสนอขายหุ้นส...

Words: 271 - Pages: 2

Premium Essay

Ocean Manufacturing Case

...Acct 4080Ocean Manufacturing Case1.1) Obtain and review financial information about the prospective client: annual reports, interim statements, registrations statements, Form 10-k’s, and reports to regulatory agencies.2) Detailed criminal background checks of senior managers.3) Evaluate the public accounting firm’s independence with regard to prospective clients.4) Inquire of the prospective clients’ bankers, legal counsel, underwriters, analysts, or other persons who do business with the entity for information about the entity and its management.5) Consider the need for individuals possessing special skills or knowledge to complete the audit (e.g., IT auditor, valuations specialist, industry specialist)2.   Overall, after calculating a few of Ocean Manufacturing ratios and comparing them with the industry, the company’s figures are not performing up to others in the industry.   ROE = NI/Stockholder Equity (2011,2010)= 8.9% and 7.1%ROA = NI/Assets= 4.5% . 3.8%Both return on equity and assets are lower than industry ratios but are improving.Accounts Rec Turnover—could not calculate without % of credit sales from cash sales.   Profit Margin = Operating income/ Sales(rev) = 5.5%, 6.0%PM are also low compared to the industry average.   3. There are a few non-financial items the company should consider.   a) The VP of finance was charged with a misdemeanor related to illegal gambling.   Raises questions about the tone at the top and the integrity of management.  b) The company is......

Words: 602 - Pages: 3

Premium Essay

Ocean Manaufacturing 1.1

...Case 1.1 [1] Five procedures an auditor can use in determining to accept a client are: • Evaluate the integrity of management • Identify special circumstances or unusual risks • Assess competency to perform the audit • Evaluate independence • Determine ability to use due care Auditing standards require competency, independence and due care. [2] The return on equity and assets along with the debt to equity ratio is lower than the industry. The profit margin is much greater than the industry average. These increased profits, if sustained, can keep the debt to equity ratio below average. [3] Evaluating the integrity of management is vital. If management is dishonest the engagement should not be accepted. In this case, management was honest and disclosed the past auditor differences of opinion and allowed the audit firm to talk to the previous auditor. The special circumstance of the goal of an IPO is an important consideration. Given the lack of experience in this industry and the lofty goal of the company, the audit firms’ legal liability is increased. In a litigious society, we decline any clients that put our firm at great risk. [4] [a] Having the CPA firm help develop and improve the IT system is beneficial for the company as it provides one stop shopping. Often it is easier to work with someone who is vested in other areas of your business. On the other hand, this creates an issue that they would be developing that which......

Words: 581 - Pages: 3

Premium Essay

Ocean Manufacturing, Inc.

...Ocean Manufacturing, Inc. The New Client Acceptance Decision Table of Content Step 1: Client Acceptance Decision Process......................................................................... p. 3 Step 2: Knowledge Acquisition of current Conditions: Preliminary Analytical Procedures....................................... p. 4 Step 3: Nonfinancial Matters when Accepting a Client....................................................... p. 5 Step 4: Recommendation whether to Accept or Decline Ocean as an Audit Client.. .......... p. 6 Step 5: Important Risk Areas and Factors ........................................................................... p. 7 Step 1: Client Acceptance Decision Process Barnes and Fisher needs to decide whether it will accept the auditing request of Ocean Manufacturing Inc. or not. In the process of the client acceptance decision five steps are necessary in order to come to a result. The first step of this process is to gain information about client’s company background. Ocean Manufacturing Inc. is a home appliances company, offering products like toasters, blenders, and trash compactors. It is currently considering an Initial Public Offering (IPO) within the next five years in order to increase current capital to be able to continue expansion and growth in the upcoming years. In the last 12 years it has been audited by 3 different auditors and wants Barnes and Fisher to audit its company for the year 2011. Barnes and Fisher, a......

Words: 2179 - Pages: 9