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Ocean Manufacturing Case Solutions

In: Business and Management

Submitted By npautler
Words 493
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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 integrity of management. b) The company is struggling with the implementation of a new IT system that may require the team to spend more time testing data or even obtaining data c) The company has changed auditors three times in the last 12 years. Couple that with the fact that the VP of Finance was hesitant to grant permission to speak to the previous auditor, it should raise some flags. d)…...

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