Audit Risk Analysis Project
During the first few weeks of the semester, each student will be assigned a public company for which he or she will complete an audit risk analysis project–no two students will be assigned the same company. Each student will assume the role of an audit manager of a public accounting firm who has been asked by an audit partner to assess the acceptability of the given company as an audit client and to write a memo summarizing this assessment. This is an “open-ended” assignment, which means that you can choose to structure your memorandum in any way you deem appropriate. However, at a minimum, your memorandum should cover the following points.
3. Somewhere within the memorandum you will need to discuss the apparent financial condition of the firm and highlight key financial ratios, such as, the current ratio, return on assets, inventory turnover, etc. In particular, you should bring to the partner’s attention the ratios and trends that may be indicative of the future prospects of the firm (good or bad). For instance, if the return on sales percentage has plummeted in recent years, that fact should probably be brought to the attention of the partner (and, of course, you should provide some explanation as to why this sharp downturn has occurred). Both cross-sectional and longitudinal analyses will be appropriate. Additionally, tabular summaries and exhibits (graphs, pie charts, time-series charts, etc.) will be useful means to present quantitative data regarding the firm.
Feel free to use all reference sources available in the library or online, such as, Disclosure, Dun & Bradstreet, Moody’s, Robert Morris & Associates, Standard & Poor’s, Value Line, WSJ Index, etc., in preparing your memorandum. Those online sources that supply comparative industry data will be particularly helpful. For a discussion of other factors to consider when evaluating a potential client, refer to any undergraduate auditing text. Grading criteria: …