Question 1
Problem 1-36. From Auditing and Assurance Services by Karen L. Hooks. Chapter 1. Barton and Sons, Inc., is a small, privately-held corporation that operates two retail stores in western Kentucky. Jorge Barton and his two sons own all of the company's stock and manage the store operations. The family takes pride in the corporation's success in terms of growing sales and lack of borrowing. The company is currently considering expansion into other regions of Kentucky and Indiana. Such expansion would likely require long-term borrowing and surrendering certain management responsibilities to non-family member employees. However, the family does not wish to sell stock in the company. Required: a. discuss the factors that would make it beneficial for the company like Barton and Sons to have an external audit. b. discuss the factors that would make it beneficial for a company like Barton and Sons to implement an internal audit function.,Problem 2-32. From Auditing and Assurance Service by Karen L. Hooks. Chapter 2. For each of the following accounts, list the five management assertions from most to least important for that account. State the reason justifying your order. Cash is completed as an example. a. Cash (in home currency) 1. existence, 2. rights, 3. presentation and disclosure, 4. completeness, 5. valuation. If cash does not exist, then non of the other assertions matter. However, even if cash is found to exist, it has to be owned by the company claiming it. Various disclosures can be required for cash, for example, if it is committed as a compensating balance. Completeness is not a big audit risk because it is unlikely that management would not report cash or that any amount omitted is material. Cash is reported at face value, so valuation is not an issue for cash unless it is in a foreign currency. b. long term debt c. officer salary expense paid through stock options d. sales revenue e. accounts receivable f. property, plant and equipment
Question 2
"For your group project, consider the Chevron. Using the guidelines established in Chapter 11 of your text, produce a Strategic Audit for Chevron. As you produce your Strategic Audit, make sure to include all eight sections. IFAS, EFAS, and SFAS tables are to be presented in Excel format, separate from the rest of the assignment, which is to be written in a Word file. As a reminder, two files are to be submitted: One Excel file (counting for three pages) and one Word file (up to seven pages double-spaced). You will be graded on your knowledge of the software in building the MS Excel tables, and on your ability to communicate in writing and present your arguments. You will also be graded on your ability to analyze socio-cultural, political-legal, technological, and financial data to justify your available strategies and the one(s) you recommend, and finally on your critical thinking and problem solving abilities in justifying your set of strategies. P.S the only part to do is " the discussion and recomendation" I Must turn it in today to my group. Thank you,Hello Please keep in mind this is a group project and the only part you have to provide me is the "discussion and recomendation". I must turn it in today. Im looking foward to hear back from you. Thank you for your time Smith
Question 3
THE DECISION TO LEASE OR BUY AT WARF COMPUTERS Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production. Nick War, the company president, has found a vendor for the equipment. Clapton Acoustical Equpment has offered to sell Warf Computers the necessary equipment at a price of $2.5 million. Because of the rapid development of new technology, the equipment falls in the three year MACRS depreciation class. At the end of four years, the market value of the equipment is expected to be $ 300,000. Alternatively, the company can lease the equipment from Hendrix Leasing. The lease contract calls for four annual payments of $650,000 due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $150,000 that will be returned when the lease expires. Warf Computers can issue bonds with a yield of 11 percent, and the company has a marginal tax rate of 35 percent. 1. Should Warf buy or lease the equipment? 2. Nick mention to James Hendrix, the president of Hendrix Leasing, that although the company will need the equipment for four years, he would like a lease contract for two years instead. At the end of the two years, the lease could be renewed. Nick would also like to eliminate the security deposit, but he would be willing to increase the lease payments to $1,150,000 for each of the two years. When the lease is renewed in two years, Hendrix would consider the increased lease payments in the first two years when calculating the terms of the renewal. The equipment is expected to have a market value of $ 1 million in two years. What is the NAL of the lease contract under these terms? Why might Nick prefer this lease? What are the potential ethical issues concerning the new lease terms? 3. In the leasing discussion, James inform Nick that the contract could include a purchase option for the equipment at the end of the lease. Hendrix Leasing offers three purchase options: a. An option to purchase the equipment at the fair market value. b. An option to purchase the equipment at a fixed price. The price will be negotiated before the lease is signed. c. An option to purchase the equipment at a price of $125,000. How would the inclusion of a purchase option affect the value of the lease? 4. James also informs Nick that the lease contract can include a cancellation option. The cancellation option would allow Warf Computers to cancel the lease on any anniversary date of the contract. In order to cancel the lease, Warf Computers would be required to give 30 days? notice prior to the anniversary date. How would the inclusion of a cancellation option affect the value of the lease?,hey there, thanks for helping me out~ hope to hear from you,there's an extra point to the assignment though, i'm sorry. the WACC is 12 percent~,hi there! how's it going?,Hi! I kinda don't get part 2, shouldn't the figure in C26 be 1150000 instead of 150000? and the what's the net advantage of the lease contract under the new terms?
Question 4
?Blake Romney became Chief Executive Officer of Peters Inc. two years ago. At the time, the company was reporting lagging profits, and Blake was brought in to "stir things up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Blake has no interest in plumbing supplies, and one of the first things he did was to put pressure on his accountants to reallocate some of the company?s fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Blake felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving. Given that these are "businesses of the future," he believed that the stock market would react favorably to these increases, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of the fixed costs, the profits of the electronics and fiber optics divisions would not have improved. Now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Peters their whole lives, would lose their jobs. 1. If a division is reporting losses, does that necessarily mean that it should be closed? 2. Was the reallocation of fixed costs across divisions unethical? 3. What should Blake do??
Question 5
Chapter 2: Case 2-1 "The CEO Retires". Address the "Required" questions in your main response with a minimum of one external reference (not including your textbook).,CASES CASE 2-1 THE CEO RETIRES Teaching Note: The CEO Retires (Teaching note prepared by the American Accounting Association) PURPOSE: This case is meant to illustrate that the accounting choices available can be used by management to manipulate the reported financial results of the company. CONTENT: The CEO of a company is entering the last year of his employment. For reasons of enhanced reputation, maximum compensation in his final year, and maximum compensation through the years via his pension, he has the incentive to manipulate the financial results of the company. Since this is his last year with the company, any long-term effects of the decisions he may make are not considered relevant. Furthermore, there are numerous directions the CEO can take: changing accounting estimates, deferring investing decisions, or changing accounting methods. After consideration of a variety of alternatives, the CEO meets with the CFO to get his response to the CEO?s proposed options. Decision Model a. Determine the Facts Work through the case, identifying essential facts, especially those included in the contents section above. Known facts should be listed first; then determine what one would want to know if possible. NOTE: Make the point to students that we never have all the facts; decisions are almost always made on incomplete information. b. Define the Ethical Issues (1) List all stakeholders - be sure that the class is thorough in this step -- the ethical issues will most likely arise out of conflicting interests between and among the stakeholders. the CEO, Dan Murphy the CFO, Mike Harrington the other members of top management the members of the Board of Directors the company?s auditors the company?s employees (i.e., if inventory builds, it may lead to later layoffs; a lack of repair work may create dangers in the workplace) the company?s customers (i.e., if inventory builds, it may lead to obsolescence; lack of repair work may lead to product quality problems) (2) List the ethical issues The CEO?s compensation vs. The integrity of the company?s financial statements The CFO?s loyalty to vs. The CFO?s responsibility his superior to his job The CFO?s loyalty to vs. The CFO?s responsibility his superior to protect the interests of the company and its employees Top management?s vs. Each individual?s desire responsibility to for promotion and represent the interests advancement of the shareholders The Board of Directors? vs. Rewarding the CEO for duty to provide over- a job well done sight on the behalf of the shareholders The auditor?s duty to vs. The auditor?s desire to ensure that the remain engaged as the financial statements auditor of the company present fairly the condition of the company (This list can be extended, but you should be sure that these issues are identified) c. Identify Major Principles, Rules, and Values (Here you will repeat some of the above, e.g. integrity, but you will translate others into ethical language, e.g., fairness, obligation, rights) Integrity (of the CEO and of the financial statements) Equity Fairness Credibility Protection of the business d. Specify the Alternatives Identify major options: encourage creative solutions that may be closer to win-win if possible. The CFO could support a favorable plan for the CEO The CFO could object to the proposals and refuse to sign off on them The CFO could object to the proposals and threaten to go to the Board if the CEO persists The CFO could communicate his concerns to the outside auditors Note: At this point, or even earlier, some students will have begun to take a position. The instructor should be aware of these positions and challenge students to be open to questioning their position, as well as to be open to similar questioning by others. You may want to return to this "position taking" in the discussion over Step g, the decision. e. Compare Norms, Principles, and Values with the Various Alternatives See how many of the class members will move to a decision at this point, based on the force or strength of a norm or principle. In some cases, a principle is so strong or the harm so egregious that some will decide now. For example, the concern for integrity of the financial statements may lead to strong resistance by the CFO to the CEO?s proposals. Regardless of whether a decision is reached, work through Steps f and g as if such steps were still required. f. Assess the Consequences Take two or three differing alternatives and examine the long- and short-range consequences. The CFO could support a favorable plan for the CEO The CEO benefits from enhanced retirement benefits (if the outside auditors sign off) The CFO may be rewarded by the CEO with increased salary or bonus The firm, including successor leaders and employees, may suffer from reduced earnings in the years following the CEO?s retirement The CFO may have problems with successor leaders if his agreement to the CEO?s plan is discovered The CFO?s integrity will be compromised The CFO could object to the proposals and refuse to sign off on them The CEO may drop his plans to enhance his retirement The CEO may threaten to penalize the CFO?s job security or income The CEO may take his plan to the Board without concurrence of the CFO The CFO?s integrity will be intact The CFO could object to the proposals and threaten to go to the Board if the CEO persists The CEO may drop his plans to enhance his retirement The CEO may threaten to penalize the CFO?s job security or income The CFO may stand fast or may capitulate and agree The CEO may persist and the CFO may go to the Board The Board may reject the CEO?s plans The Board may agree with the CEO The Board may seek the advice of the outside auditors The CFO?s integrity is intact The CFO could communicate his concerns to the outside auditors The outside auditors may agree with the CFO and indicate that they will refuse to issue an unqualified report The outside auditors may support the CEO?s plan The CFO will then have to drop the matter or decide whether to go to the Board The CFO?s integrity will be intact (There may be additional consequences to alternatives reviewed. There may also be other alternatives. The task now is to weigh or evaluate the consequences of the various alternatives. Some kind of numerical weighting, like a +3, -3 scale, can be used to determine comparative value of alternatives. Point out to the class the difficulty of assigning numerical values, but also note that we do compare, routinely, the significance of various consequences, although not always quantitatively.) (If a decision was not reached in Step e above, then no principle or value was determinative. Now the consequence with the highest numerical value should be the choice if it squares with one of the basic listed principles and values.) g. Make Your Decision Take a vote; insist that everyone choose. Examine the outcome and rationale for different positions, if there is time. TIME ALLOCATION A full discussion and analysis of the case will take approximately an hour. If you are interested in focusing on the identification of ethical issues at various points in the course, you could deal with the identification of stakeholders and defining of the ethical issues in 15-20 minutes.,why it still uder evaluation
