Acc 413 - Cpa Simulation

Anish Tamrakar

Acc 413

CPA Simulation

02/07/11

1. A risk factor relating to misstatements arising from fraudulent financial reporting is:

a. Earnings this year are lower than management had hoped.

b. Overly complex transactions.

c. Sales are made to both residential and commercial purchasers.

d. The industry faces great technological changes in its products.

a) The risk factor relating to misstatements arising from fraudulent financial reporting is the earning this year lower than management had hoped. Management had expected better results from the company but company failed to deliver the expected future earning which basically put the management in the tough spot and forces them to make some kind fraud either by increasing the last year net income to make the company look good.

And on top of that it is not mentioned that the company had to face any dynamic transaction or any technological changes.

2. Which of the following correctly identifies a risk facing J & M that might adversely affect sales during the coming years?

a. High unemployment.

b. Sales to many different types of customers.

c. Product obsolescence.

d. A board of directors dominated by management.

a) High unemployment is one of the main factors that might adversely affect sales during the coming years for the risk facing J& M Audit Committee, as high unemployment rate is one of the basic factors, which affects the company's sales. This factor is closely linked with the sales, as the people will not have enough money to build new houses or other real state property so the demand of lumber also decreases due to this. Other factor mentioned above doesn't pose any threat to sales as lack of independence among the BOD or product obsolescence.

Ratio 20X6 20X5

Quick Ratio 1.21 3.69

Debt to Equity 17.11 22.51

3. An audit finding consistent with the change in the quick ratio for J & M:

a. Although the inventory was counted and included in the 20X6 year-end total, numerous year end inventory purchases (for credit) were not recorded.

b. Significant