Instructor Resource Manual — Do Not Copy or Redistribute
Asher Farms Inc.
C a s e 2.4
Relevant professional standards for this assignment are AU Section 310, “Appointment of the Independent Auditor,” AU Section 311, “Planning and Supervision,” AU Section 312, “Audit Risk and Materiality in Conducting an Audit,” AU Section 314, “Understand the Entity and Its Environment and Assessing the Risks of Material Misstatements” and AU Section 316, “Consideration of Fraud in a Financial Statement Audit.”
QUESTIONS AND SUGGESTED SOLUTION
A useful approach for understanding a client’s business environment and  associated business risks is to perform a PESTLE analysis. PESTLE is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors that are used to asses the client’s business environment. A PESTLE analysis focuses on factors that may affect an entity’s business model but are beyond the control or influence of the client. While beyond management’s direct influence, such factors may significantly impact an entity’s business risk. Read the background information about the poultry industry and conduct additional research on the internet to obtain the latest news and information on the industry. Brainstorm political, economic, social, technological, legal and environmental factors that could affect Asher Farms’ business risk. Unless your instructor indicates otherwise, identify at least one business risk factor for each component of the PESTLE acronym.
Political instability in customer markets from the effects of war and terrorist activities could adversely affect ability to obtain production supplies or sell chicken products. Financial Statement Accounts/Disclosures that could be affected: Going concern disclosure, cost of sales, revenue, inventory
The company may not be able to continue as a going concern or may have to pay more to produce poultry or not be able to obtain supplies or sell poultry from/in important markets.
Immigration reform continues to attract significant attention. New immigration legislation at the federal or state level could make it more difficult or costly for the company to hire United States citizens and/or legal immigrant workers. Also, increased enforcement effortsopy or Redistribute with respect to existing immigration laws by governmental authorities could disrupt a portion of the workforce in the industry and thus adversely impact production of chicken products.
Financial Statement Accounts/Disclosures that could be affected: Cost of sales, revenue The company may have to pay higher labor costs or may not be able to produce and sell as much poultry.
Changes in tax rates c ould adversely affect company earnings. Financial Statement Accounts/Disclosures that could be affected: Taxes payable, deferred taxes, tax expense
The company may have to remit more in taxes to government.
Changes in national or global macro-economic conditions, including currency translation rates, inflation, interest rates and consumer spending rates could adversely affect company earnings.
Financial Statement Accounts/Disclosures that could be affected: Cost of sales, revenue, inventory
The company may have to pay higher production costs or may not be able to produce or sell as much poultry.
The strong economic growth in the developing world has resulted in higher demand for chicken products. A decline in the growth of the developing world due to dramatic increases in energy costs could adversely affect the demand for company products. Financial Statement Accounts/Disclosures that could be affected: Revenue, inventory The company may not be able to sell as much poultry.
Competing demand for corn and soybean meal for use in the manufacture of renewable energy could adversely affect company earnings. Corn and soybean meal represent approximately 41 percent of production costs in the poultry industry. Financial Statement...
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