1. Family owned business is a business that is owned by one family, most of the shareholders are from the same family. One of the major problems in this type of business is a conflict in interests among the family’s member. The auditor should be careful and observe the type of the relationship among the family’s member. There should be a written agreement to specify rights, duties, and obligations for each member, the auditor should read those documents for further information. One issue that faced the auditor is to understand the attitude of each member, the risk of manipulating facts can be existed due to the close relationship. In the case of Jack Greenberg, the son has manipulated the numbers in the record for his father’s sake and no one would be able to prevent him since he is one of the owners. The possibility of hiding facts is high in this kind of business because of the close relationship among the family’s member. I believe the family owned business demands more effort from the auditor to check and discover misstatements.
2. For the prepaid inventory I would recommend that the auditor should focus on the following objectives; existing, occurrence, valuation and allocation, completeness, and right and obligation. Prepaid items represent a complete listing of the company’s costs that are allocable to future periods and that can reasonably be expected to be realized through future operations. As for the merchandise, the auditor should physically observe the inventory to verify the amount recorded, the most important part of the observation of inventory is to determine whether the physical count is being taken in accordance with the client’s instructions. The audit objective related to merchandise are;
* Existence: Inventory as recorded on tags exists.
* Completeness: Existing inventory is counted and tagged. * Accuracy: Inventory is counted accurately.
* Realizable value: Obsolete and unusable...