Case 1
ACCT622 -Advance Auditing
Case 1.5 Leslie Fay Company
Critique
Case Discussion and Summary
I felt the case discussion and summary was well done. It included the majority of the essential components of the case and the facts were summarized in a very organized fashion. The one item I did not find in the summary and the discussion is the final results of the case. After reading the summary it would have been helpful to include a summary of findings from the 600 page audit committee report submitted to the SEC . I would have also like to have known more about the BDO circumstances and charges they faced as the blame centered on them initially (Accounting Today, 1993)
Questions
1. Prepare common-sized financial state for Leslie Fay for the period 1987-1991. For that same period , compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statements items do you believe should have been of particular interest to BDO Seidman during that firm’s 1991 audit of Lesllie Fay? Explain.
Answer: Your answer is correct and your ratio calculations are accurate. Leslie Fay’s current ratio and quick ratio in comparison to the industry should have caused a red flag. Consequently an investigation into the current assets and current liabilities should have been a focus of the auditors. In addition to the balance sheet items the return on assets was over 200% greater than the industry norm , which should have red flagged income as another area of interest for the auditors.
2. In addition to the data shown in Exhibit 1 and Exhibit 2, what other financial information would you have obtained if you had been responsible for planning the 1991 Leslie Fay audit?
Answer: As you stated I too agree sales information and documentation would have been a focus and a need for more information. I would have requested sales data by customer to provide more information regarding sales and accounts receivable numbers. I would also request an Accounts Receivable
Case 1.5 Leslie Fay Company
Critique
Case Discussion and Summary
I felt the case discussion and summary was well done. It included the majority of the essential components of the case and the facts were summarized in a very organized fashion. The one item I did not find in the summary and the discussion is the final results of the case. After reading the summary it would have been helpful to include a summary of findings from the 600 page audit committee report submitted to the SEC . I would have also like to have known more about the BDO circumstances and charges they faced as the blame centered on them initially (Accounting Today, 1993)
Questions
1. Prepare common-sized financial state for Leslie Fay for the period 1987-1991. For that same period , compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statements items do you believe should have been of particular interest to BDO Seidman during that firm’s 1991 audit of Lesllie Fay? Explain.
Answer: Your answer is correct and your ratio calculations are accurate. Leslie Fay’s current ratio and quick ratio in comparison to the industry should have caused a red flag. Consequently an investigation into the current assets and current liabilities should have been a focus of the auditors. In addition to the balance sheet items the return on assets was over 200% greater than the industry norm , which should have red flagged income as another area of interest for the auditors.
2. In addition to the data shown in Exhibit 1 and Exhibit 2, what other financial information would you have obtained if you had been responsible for planning the 1991 Leslie Fay audit?
Answer: As you stated I too agree sales information and documentation would have been a focus and a need for more information. I would have requested sales data by customer to provide more information regarding sales and accounts receivable numbers. I would also request an Accounts Receivable