Está en la página 1de 7

ACCT 3596: Auditing

2011
Just For FEET, Inc.
Case Analysis: Case 1.2 #1-3, 5
Beka Vinogradov
Seat #1
1 Beka Vinogradov
ACCT 3596: Case Analysis

#1. Common-Sized Balance Sheets.

Just for FEET, Inc.


Balance Sheet


Years ending Jan 31st

1996 1997 1998
Current Assets:


Cash & Equivalents 36.93% 18.40% 1.80%

Marketable Securities AFS 9.04% 0.00% 0.00%

Accounts Receivable 1.74% 3.53% 2.74%

Inventory 35.47% 45.97% 58.01%

Other Current Assets 0.56% 1.50% 2.65%

Total Current Assets 83.75% 69.40% 65.20%
Property & Equipment, net 14.61% 21.08% 23.29%
Goodwill,
net
0.00% 8.05% 10.31%
Other 1.64% 1.46% 1.19%

Total Assets 100.00% 100.00% 100.00%
Current Liabilities:


Short-Term Borrowings 26.61% 20.22% 0.00%

Accounts Payable 10.35% 11.41% 14.55%

Accrued Expenses 1.46% 2.07% 3.60%

Income Taxes Payable 0.11% 0.30% 0.13%

Current Maturities of LT
Debt
0.56% 0.72% 0.96%

Total Current Liabilities 39.09% 34.73% 19.25%
LT Debt & Obligations 2.76% 5.48% 33.51%

Total Liabilities 41.85% 40.21% 52.75%
Shareholders' Equity:


Common Stock 0.00% 0.00% 0.00%

Paid-In Capital 50.69% 48.76% 36.20%

Retained Earnings 7.47% 11.03% 11.04%

Total Shareholders'
Equity
58.15% 59.79% 47.25%




Total Liabilities & SH'
Equity
100.00% 100.00% 100.00%


2 Beka Vinogradov
ACCT 3596: Case Analysis

#1. Common-Sized Income Statements.

Just for FEET, Inc.


Income Statement


Years ending Jan 31st

1996 1997 1998
Net Sales

100.00% 100.00% 100.00%
Cost of
Sales
57.54% 58.46% 58.38%

Gross Profit 42.46% 41.54% 41.62%
Other Revenues 0.23% 0.23% 0.17%
Operating Expenses:


Store Operating 27.04% 29.18% 30.01%

Store Opening Costs 4.38% 1.41% 1.76%

Amortization of
Intangibles
0.07% 0.25% 0.27%

General &
Administrative
3.07% 3.77% 3.14%

Total Operating
Expenses
34.57% 34.60% 35.18%
Operating Income 8.12% 7.17% 6.61%



Interest Expense -0.32% -0.30% -1.04%
Interest Income 1.85% 0.29% 0.02%
EBIT & Acct. Principle 9.65% 7.15% 5.59%



Provision for Income Taxes 3.43% 2.68% 2.15%
Earnings prior to Acct. Principle 6.22% 4.47% 3.44%



Prior Year Acct. Principle -0.80% 0.00% 0.00%

Net Earnings 5.43% 4.47% 3.44%


3 Beka Vinogradov
ACCT 3596: Case Analysis

#1. Key liquidity, solvency, activity, and profitability ratios (1997, 1998).
1997 1998


$ 172,746 $ 82,490

$ 146,914 $ 155,706

1.1758308 0.5297805 Cash Ratio
$ 179,299 $ 98,330

$ 146,914 $ 155,706

1.2204351 0.6315107 Quick Ratio
$ 314,743 $ 311,167

$ 146,914 $ 155,706

2.1423622 1.9984265 Current Ratio

$ 256,397 $ 478,638

$ 6,553 $ 15,840

39.12666 30.217045 A/R Turnover

365 365

39.12666 30.217045

9.3286778 12.079275
Days to Collect
Receivables
$ 147,526 $ 279,816

$ 133,323 $ 206,128

1.1065308 1.3574866 Inventory Turnover
365 365

1.1065308 1.3574866

329.85979 268.87926 Days to Sell Inventory

$ 157,278 $ 180,268

$ 218,556 $ 268,084

0.7196233 0.672431 Debt to Equity

$ 20,825 $ 34,296

$ (832) $ (1,446)

-25.030048 -23.717842 Times Interest Earned


4 Beka Vinogradov
ACCT 3596: Case Analysis


$ 13,919 $ 21,403


? ?

$ 37

EPS


$ 108,871 $ 198,822


$ 256,397 $ 478,638


0.4246189 0.4153912 Gross Profit %


$ 20,825 $ 34,296


$ 256,397 $ 478,638


0.0812217 0.0716533 Profit Margin


$ 24,743 $ 34,220


$ 375,834 $ 448,352


0.0658349 0.076324 Return on Assets


$ 24,743 $ 34,220


$ 218,556 $ 268,084


0.1132113 0.1276466
Return on Common
Equity


#1. High-risk financial statement items.
Based on the information given in the case and the data calculated (above), there are
multiple high-risk financial statement items for the 1998 audit of Just for FEET, specifically
regarding account balances and presentations and disclosures. Notably, inventory valuation,
which increased from 35.47% of total assets in 1996 to 58.01% in 1998, and the accuracy and
allocation of vendor allowances were marked as the highest risk areas. With FEET's use of
creative accounting, accuracy and classification of transactions/events must be monitored as
well. While the calculation of store opening costs fluctuated, store operating costs saw a gross
increase - from $69,329 in 1996 to $232,505 in 1998.


5 Beka Vinogradov
ACCT 3596: Case Analysis


#2. Internal Control Risks; audit planning decisions.
Some internal control risks common among large, high-volume retail stores include
dealing with inherent limitations and potential fraud. Even if a well-designed internal control
system is in place, the employees using it are ultimately the deciding factors in its effectiveness.
For example, management may instruct an employee or easily-influenced executive (of another
company) to alter information or confirmations or multiple employees may conspire to steal
assets or misstate records (collusion; misappropriation of assets).

#3. Inherent Risk Factors; audit planning decisions.
Businesses that face extreme competition are susceptible to many inherent risk factors
the measurement of the auditors assessment of the likelihood that there are material
misstatements in an account balance before considering the effectiveness of internal control.
Complex valuation issues and related party transactions are two such factors that would affect
audit planning decisions.
Valuation issues may lead the audit team to request more evidence, if they choose to
accept the audit at all. Risks such as inventory turnover leading to potential misstatements of
inventory, costs of goods sold, or obsolescence of inventory may influence the audit firms
decision to hire outside specialists to assist in the audit. Another inherent risk factor, client
business risk (competitive advantage), would further emphasize the need to understand the
clients industry in the audit planning process.

6 Beka Vinogradov
ACCT 3596: Case Analysis


#5. Affected parties; how would you have responded?
There are many parties involved which would be affected by the decision. Both Thomas
Shine and Reebok, Just for FEET executives and employees, Deloitte & Touche, as well as all
public shareholders/investors would have been affected by Just for FEETs decision to commit
fraud. With complying executives of vendor firms, these agents are further susceptible to the
negative repercussions of Just for FEETs fraudulent behavior.
I would have said no to Don-Allen Ruttenberg if asked to send a false confirmation.
Illegality aside, I would be risking my reputation, five years in federal prison, and a $250,000
fine to do so. Furthermore, I feel Shines actions did absolutely nothing to benefit himself or his
company. There was no gain to Shine or Reebok in consenting with Ruttenbergs request so I
have trouble understanding why he agreed to it. The case states that FEET had a significant
amount of economic leverage over the vendor executives, but doesnt really explain why. This
is a prime example of why fraud occurs (see: fraud triangle): the pressures (on Shine) to
consent to FEETs demands, as well as the opportunities available and
attitudes/rationalization of top management/Ruttenberg to commit.

También podría gustarte