Pinnacle case study part ii Essay

The go with is privately held, but there is a enceinte amount of debt, so the financial statement -whitethorn be used extensively. Also, management is considering selling the Machine-Tech division, which has the potential to provide in extensive use of the statement by buyers. 2. Item 6 in the planning variant indicates plans for additional debt financing. Likelihood of financing difficulties1. The solar business leader engine business revolves around changing technology, thus making it intrinsicly more risky than different business, with a better chance of bankruptcy. The first power point in the planning issues raises a stir virtually the viability of the division, but not the entire company. 2. Part 1 of the case was that the likelihood of financial failure is starting time, scour with the issues of the company. 3. Item 9 in the planning anatomy solicits a current ratio of 2.0 and if fall at a lower place that, this could ensue in the loan being called. counselin g integrityNo major issues exist that would involve believe the hearer to question the integrity of the management. However, auditor should hand done client acceptance procedure originally accepting the client. on that point argon a fewer factors in which fraudulent financing reporting whitethorn occur. b. Acceptable audit risk is medium to low because of the factors listed in part (a) and the planned increase in financing and the potential violation of the debt covenant agreement. This readiness be low because this is the first year audit. c.1. inborn run a risk No effect on infixed risk2. constitutive(a) jeopardy The primary concern is the possibility of obsolete inventory, which runs the valuation of inventory at the lower of cost or market. study bear on Inventory, cost of goods sold canvass Objectives Transaction- cerebrate3. Inherent Risk There is potential link party work, which could consider the valuation of the transaction, which could affect the valua tion of the transaction and may require apocalypse as a related party transaction. invoice bear on Manufacturing equipment, footnote audit objectives Transaction-related, presentation and disclosure-related4. Inherent Risk This involves a nonroutine transaction where there is a risk that materials, labor, and overhead are incorrectly applied to the property accounts. Account alter Property accounts, inventory, cost of good sold analyze objectives balance-related5. Inherent Risk There may be a major collection problem with prominent receivables of 15% from a customer for several months. This could result in an understatement of the allowance for uncollectible accounts. Account modify Account receivable, bad debt expense, and allowance for uncollectible accounts. study objectives balance-related6. Inherent Risk No effect on inherent risk7. Inherent Risk There may be a related party transaction, which could affect valuation of the transaction and may require disclosure. Account alter Account collectible, Repairs expenseAudit objectives Transaction-related8. Inherent Risk This does not affect inherent risk directly, but it is possible that the turnover of inner audit personnel could increase the risk of fraudulent financial reporting. The turnover may also affect the auditors assessment of control risk. Account affected All accountsAudit objectives transaction, balance, presentation and disclosure-related9. Inherent Risk In addition to affecting AAR, the auditor should be concerned about the risk of fraudulent financial reporting due to incentive to make certain that all debt covenants have been met. Account affected All accountsAudit objectives transaction, balance, presentation and disclosure-related10. Inherent Risk An ongoing dispute with the IRS powerfulness require enrolment to income tax liability or a disclosure in footnotes for a contingency, depending on the status of the dispute. Account affected Income tax expense and income tax payableAudi t objectives balance-related11. Inherent risk This situation involves related party transaction because this transaction was not conducted with an exterior party. It is possible that the related receivable and payable might not have been properly eliminated on aggrandisements consolidated financial statements. Account affected Notes payable, notes receivable, interest expense, and interest income. Audit objectives Transaction and balance-related