Scenario Summary Smackey Dog Foods, Inc. started in the kitchen of Sarah, Kim, and Jillians family home in the suburbs of Chicago. The three sisters initially bought the ingredients for their natural dog food recipes from the local grocery store. They used their dogs and the neighborhood dogs as their taste testers. Their dog food products were so good, the local kennels and veterinary offices were glad to distribute the sisters’ products to their customers. Local demand increased significantly. Local pet stores and small grocery stores discovered the products and became distributors. The sisters moved the expanding business into a larger facility and hired a few more workers. While their competitors sales were flat or declining, Smackey Dog Food, Inc.s sales were on a vertical climb! Sales were so good last year, the sisters opened a boutique division named Best Boy Gourmet, specializing in freshly manufactured, one serving packages meant for consumption no later than three days after production. They sell this product at three times the cost of their other products and by special order only through their new website. Demand is high, but waste has been an issue. Sarah is the president and general manager of the operation. Sarah has been very proactive in growing the business. She has met with her banker to discuss expanding the facilities and equipment with another $150,000 loan. Their first loan for $150,000 was secured by the industrial size, food production equipment purchased with the loan. The banker now demands an audit of the corporate financial statements before releasing another loan to the company. Sarah has offered to place the corporate account receivables up as collateral to secure the second loan. Based on revenue projections by her sister Jillians sales team, Sarah believes that the company will not have trouble paying down the loan in a short period of time. Kim manages the production operations. She oversees the inventory, production, and shipment of dog food products. The Best Boy Gourmet line has taken almost all of her attention lately. The winter holidays are approaching, and sales demand based on forecasts from the sales force are higher than ever. Attaining fresh, raw ingredients is more difficult in the winter months. If any of the fresh ingredients are delayed, production comes to a stand still. There has been significant inventory waste as a result. Kims assistant, Henry, monitors the production and shipment of Smackey Dog Foods regular line of product. Henry takes pride in his work and is involved in every facet of the operation. With only one other warehouse employee to help, Henry personally is involved in preparing and approving all inventory records. Henry ensures that very little finished inventory sits in the warehouse. However, the shipping dock always seems to be full of returned dog food that should be restocked. When Kim asks him about it, Henry laughs and tells her that first in first out applies to dog food returns as well. Kim smiles and just accepts that answer. Jillian is not very good at understanding accounting. The sisters placed Jillian in charge of sales. She manages a sales team of 12 salesmen in Illinois, Indiana, and Wisconsin. Her fear of flying and poor driving skills limit her ability to get around to the areas outside of Chicago. As a result, she has placed a lot of faith in her sales team. The sales team complained last year that they did not like waiting for their commissions until after bookkeeping calculated the actual revenues. In order to keep their spirits fired up, Jillian has her sales people project what their sales will be in the upcoming quarter, and she pays commissions in advance on those projections. The sales team loves her and Jillian loves their approval. Jillian has noticed that the projections typically are off by 11% on average. The employees of Smackey Dog Food, Inc. all own dogs. It was a hiring requirement on the job application. One employee was fired when it was discovered she never owned a dog when she was hired. A lawsuit is pending by the fired employee. At this time, the receivables represent 29% of the corporate assets. The Chicago retail chain Pup Stores, Co. is Smackey Dog Foods largest buyer. They alone represent 31% of overall sales and usually pay within 30 days. However, Pup Stores is facing a major lawsuit from animal rights group. The legal fees are eating into their cash reserves, and they are facing some store closures. The accounts receivable aging indicates that 38% of the receivables are 30 days or less. Twenty-two percent are 31 to 60 days. Twenty-one percent of the receivables are 61 to 90 days old. Ten percent are 90 to 120 days. The remaining receivables are older than 120 days. Sarah has not written off any of the receivables, nor will she. Sales are projected to steadily grow at 16% next year if the company does not expand its facilities. With the expansion, sales are projected to rise 26% with the most significant jump in the last quarter after expansion is completed and holiday sales pick up. Based on the scenario we need to answer the following questions You and your firm, Keller CPAs, have never audited a dog food manufacturer. Although it is late in the year to be accepting a new calendar year-end audit, you need the work and have the time to devote to the audit before your two-week ski vacation in February. You begin the audit process just prior to year end by sending your audit manager Pete and two audit staffers Ben and Maureen out to the client. They spend time assessing the client and planning the audit. During the first month of field work after year end, Ben and Maureen note that the dog food bags piled high on the docks are marked Returned.” One employee is seen throwing bags of the premium Best Boy Gourmet dog food into the dumpster in the morning and pulling it out and throwing it into Henrys car during the employee lunch hour. Petes new best friend Alan was married to Smackey Dog Food, Inc.s owner, Kim, 4 years ago. Alan is also good friends with the banker from whom Sarah is seeking the loan. Pete is unaware of the relationship. Pete has talked about some of the details of the audit to Alan over a few beers. Key Players Pete, Audit Manager Pete has been with your firm since you left Arthur Anderson, pre-Enron. He was your staff auditor when you were an audit manager with AA, and you brought him along for the ride. Pete hopes to be promoted to partner in the next year. Ben, Audit Staffer Ben has been with your firm since he graduated last year. He is easily distracted but puts in the long work hours necessary to build the firms practice. Ben develops a crush on Smackey Dog food, Inc.s bookkeeper Anita. He doesnt act on his feelings and does not mention this to anyone affiliated with the audit. You find out about it the following summer when he brings her to the firms company picnic. Maureen, Audit Staffer Maureen has 5 years of prior experience as an auditor. She has a tendency to over audit accounts and needs supervision in this regard. Last year, she was responsible for catching a significant defalcation in the books of another client, resulting in a federal investigation and incarceration of the clients CFO and a board member. To complete this deliverable, please answer the following regarding the aforementioned case: 1. Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. 2. Discuss the essential activities involved in the initial planning of an audit. How do these all specifically apply to the Smackey Dog Food client? 3. Discuss the four stages of the audit and the major activities performed by the auditor in each phase. Give an example of how each of these specifically applies to the Smackey Dog Food, Inc. audit. For instance, examine the apparent internal control weaknesses and possible negative outcome of each. 4. Describe Keller CPA’s responsibilities related to communications regarding internal control matters. What internal controls issues do you identify? 5. You decide that you will address Smackey Dog Food, Inc.’s accounts receivables through confirmations. Discuss the various types of confirmations, and what forms you will implement, and why? 6. What are the major factors affecting sample size for confirming accounts receivable? 7. A major issue in verifying the ending balance in property, plant, and equipment is the possibility of legal encumbrances. Discuss what specific concern you have. Describe the procedures your firm will perform to obtain evidence about existing legal encumbrances. 8. The client wants to know if you will be present at the year-end inventory. What is your decision and why? What role or actions will you take at the inventory if you decide to attend the inventory. Why? 9. Considering the general six functions that make up the inventory and warehousing cycle for Smackey Dog Foods, Inc., identify the related documents and/or records that would be used. From your analysis of the internal controls related to the inventory and warehousing cycle of Smackey Dog Foods, Inc., what internal control weaknesses exist? 10. Discuss if Keller CPAs or its auditors are breaching any Professional Rules of Conduct. Why or why not?

COMPONENT A

Financial Performance Analysis Report

Prime Retail Year Ended 31 December 2024

Part 1: Financial Statement Interpretation

The Role and Importance of Financial Statements

Financial statements are not just numbers. They help to understand the financial health and long-term survival of a business. For a sole trader like Prime Retail, they are very important because they show whether the business is profitable and financially stable.

The Statement of Profit or Loss (Income Statement) shows the performance of the business during the year ending 31 December 2024. It calculates revenue, subtracts cost of goods sold to find gross profit, and then deducts operating expenses to find net profit. This statement helps to answer an important question: Is the business making real profit from its operations?

In 2024, revenue increased to ?320,000 and net profit increased to ?18,800. This shows improvement compared to 2023. However, this statement does not show the cash position of the business. It includes non-cash expenses such as depreciation, which reduce profit but do not reduce cash immediately.

On the other hand, the Statement of Financial Position (Balance Sheet) shows the financial position on one specific date, 31 December 2024. It shows assets, liabilities and capital. The accounting equation (Assets = Liabilities + Capital) helps us understand whether the business is solvent and how it is financed.

This statement is useful for suppliers and lenders because it shows whether Prime Retail can meet its obligations. However, it only shows a snapshot and does not explain performance during the year.

Analysis of Year-End Adjustments

Financial statements follow the accrual concept, meaning transactions are recorded when they happen, not when cash is paid.

Two important adjustments were made:

1. Accrual of ?500 (Light, Heat and Power)

The expense increased from ?4,500 to ?5,000. The ?500 difference is recorded as an accrual under current liabilities. This ensures that expenses are recorded in the correct accounting period. Without this adjustment, profit would be overstated.

2. Depreciation (?18,000 total)

Depreciation was charged on equipment and vehicles. This increases accumulated depreciation and reduces net profit. It follows the matching principle by spreading the cost of assets over their useful life. Without depreciation, assets and profit would be overstated.

These adjustments improve accuracy and reliability of financial reporting.

Part 2: Ratio Analysis and Performance Evaluation

To understand the real financial condition of Prime Retail, it is not enough to look at figures separately. We must analyse relationships between figures using financial ratios.

A. Profitability Ratios

Profitability ratios measure the ability of the business to generate profit from sales and capital.

Ratio

2023 Result

2024 Result

Benchmark

Gross Profit Margin

39.66%

43.75%

45%

Net Profit Margin

4.14%

5.88%

10%

ROCE

10.01%

16.53%

20%

Profitability Analysis

The profitability results show improvement but also some concerns.

Gross Profit Margin increased to 43.75%. This shows better control over cost of goods sold or improved pricing strategy. It is close to the 45% industry benchmark, which is positive.

However, Net Profit Margin is only 5.88%, which is far below the 10% benchmark. This means that operating expenses such as wages and rent are reducing overall profitability. Even though trading performance improved, cost control needs more attention.

ROCE improved significantly from 10.01% to 16.53%. This means the company is using capital more efficiently than last year. However, it is still below the industry standard of 20%, so capital is not being fully optimized.

Overall, profitability is improving but still not strong enough compared to competitors.

B. Liquidity Ratios

Liquidity ratios measure the ability of the business to meet short-term obligations.

Ratio

2023 Result

2024 Result

Benchmark

Current Ratio

1.89:1

1.94:1

1.8:1

Quick Ratio

0.97:1

0.60:1

1.0:1

Detailed Liquidity Analysis

At first glance, the Current Ratio of 1.94:1 looks strong because it is above the industry benchmark. This suggests that the company can cover its short-term liabilities.

However, this may be misleading because most of the current assets are inventory. When inventory is removed, the Quick Ratio falls to 0.60:1. This means that for every ?1 of short-term debt, the company has only 60 pence of liquid assets.

This shows that Prime Retail is heavily dependent on selling stock to pay debts. If sales slow down, the company may face liquidity problems.

The business is profitable, but cash is weak. This is a warning sign.

C. Efficiency Ratios

Efficiency ratios measure how well the business manages its assets.

Ratio

2023 Result

2024 Result

Benchmark

Inventory Turnover

5.38 times

3.60 times

6 times

Receivables Days

28 days

32 days

30 days

Efficiency Analysis

Inventory Turnover decreased significantly to 3.60 times per year. This is far below the benchmark of 6 times. It means stock is moving slowly and cash is tied up in inventory.

Receivables Days increased to 32 days. This means customers are taking longer to pay. Although the increase is small, it still shows weaker credit control.

When inventory turnover decreases and receivables days increase, cash flow becomes weaker. This explains why the bank balance is low.

Prime Retail is becoming stock-heavy and cash-poor.

Part 3: Recommendations and Ethical Considerations

Recommendation 1: Improve Inventory Management

The company should reduce excessive stock levels. Management should analyse sales trends and avoid over-purchasing. Reducing inventory will release cash and improve liquidity ratios.

Recommendation 2: Strengthen Credit Control

The company should reduce credit periods and offer discounts for early payment. Faster collection will improve cash flow and reduce liquidity risk.

Ethical Consideration

It is important that inventory is valued correctly. If some stock is old or damaged, it should be recorded at lower value according to the prudence concept. Overstating inventory would make the financial position look stronger than it actually is. Ethical reporting builds trust and prevents misleading stakeholders.

Overall Evaluation

Prime Retail has improved profitability in 2024. Revenue and margins have increased, and ROCE has improved. This shows growth.

However, liquidity and efficiency are weak. High inventory and slower receivables collection are reducing cash flow. If these issues are not controlled, they may create financial pressure in the future.

In conclusion, Prime Retail is improving in profit performance but must urgently improve working capital management to achieve long-term stability and match industry standards. hunamxie this 90 percent

from ai

This exercise provides an overview of the training obtained by three auditors. Use the worksheet at

to determine how many of their training hours qualify for the Yellow Book requirements for 24 hours and 56 hours. On the worksheet, Exercise #1–Bill Viper, manager, provides some examples of how to measure the hours applicable to these categories.

Please see attached then answer the following.

Question 1

How many hours of Bill Viper’s courses qualify for the Yellow Book 24-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Question 2

How many hours of Bill Viper’s courses qualify for the Yellow Book 56-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Question 3

How many hours of Irene Bentley’s courses qualify for the Yellow Book 24-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Question 4

How many hours of Irene Bentley’s courses qualify for the Yellow Book 56-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Question 5

How many hours of Sandy Dodge’s courses qualify for the Yellow Book 24-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Question 6

How many hours of Sandy Dodge’s courses qualify for the Yellow Book 56-hour requirement? (Note: only insert the number of qualifying numbers, e.g., 16).

Unit 6 Assignment Directions: Project 2 Stage 1

Purpose

For your second project, you will analyze companies financial trends and ratios over the most recent available years. Then, you will provide recommendations on which of these companies is considered more financially viable and should therefore be chosen for a long-term commitment. Using the information from the companies websites, you will develop trend and ratio analyses of the financial performance for the company.

Task ( Use Target as the Company)

Throughout the next few units, you will complete this assignment with multiple deliverables focused on analyzing a companies financial trends.

These deliverables include:

1. Written Report
2. PowerPoint Narrated Presentation with Voice Recording over the Slides
3. Peer -to-Peer Responses in the Virtual Presentation Discussion Area

You will begin completing this project by completing

Please see attached document for The Written Report instructions.