PJA 1 Audit Forms

Topics: Financial audit, Audit, Balance sheet Pages: 23 (4822 words) Published: March 24, 2015
Professional judgment framework
Fraud risk assessment
Part I:
Background
Jameson Family Farms (JFF), a family owned business, grows, processes and packages a range of fruits and vegetables, but primarily specializes in growing and selling peanuts. The company has a niche for selling their particular salted and unsalted peanuts to grocery stores and baseball stadiums in the southeastern region of the US. The product offerings have been stable over the last five years, but the company began internet sales in 2010, which increased sales by about $19 million in 2010 over 2009. The commodity business for peanuts, however, is very competitive and seven to eight major companies vie for US sales. JFF’s has annual audits for lending requirements and for family purposes. The family members are paid a modest salary. Prior to 2012, JFF management was composed mainly of closely related family members who started the business more than 30 years ago. Over the last two years, as internet sales have increased, a number of these family members have been voicing the notion of retiring from the business through either an initial public offering (IPO) or private sale of the company. In late 2011, given the age of these family members, other younger, extended family members were considered for the senior management ranks. As a result, in early 2012, the family brought in a distant cousin, Larry Marshall, to fill the role of the Chief Executive Officer (CEO). Marshall has prior experience working with and growing food commodity companies and preparing such companies for IPOs. Before joining JFF, Marshall was out of work for almost a year and, prior to that, he worked for three different companies over a five-year period. The CEO’s compensation and year-end bonus are based on yearly pretax income as well as non-monetary measures related to meeting IPO filing requirements. Marshall hired a former fellow employee as the new Chief Financial Officer (CFO), Gwen Thomas, and gave Thomas the overall responsibility for the Accounting Department and related financial reporting. Thomas, in turn, hired two individuals in the Accounting Department who worked with her and Marshall at previous companies. Thomas also has her compensation and year-end bonus based on JFF’s yearly pretax income. The audit firm, Fairly Stated, LLP, has been auditing JFF for over 15 years. The audit partner, Robert Williams, has been on the account for five years and as the audit partner for the last three years. Williams is friends with Harvey Jameson, the patriarch of the family, but Williams does not know Larry Marshall or Gwen Thomas.

Balance sheet

December 31
September 30

2010
2011
2012
Assets:

Cash
$ 620,000
$ 1,290,000
$ 1,180,000
Short-term investments
4,130,000
3,440,000
1,440,000
Total cash and short-term investments
4,750,000
4,730,000
2,620,000

Accounts receivable, gross
5,050,000
3,580,000
5,200,000
Less allowance for doubtful accounts
(240,000)
(140,000)
(150,000)
Accounts receivable, net
4,810,000
3,440,000
5,050,000

Inventory
12,050,000
12,200,000
13,420,000
Other current assets
5,890,000
6,590,000
7,030,000
Total current assets
27,500,000
26,960,000
28,120,000

Property, plant and equipment
21,730,000
22,690,000
25,690,000
Less accumulated depreciation
(12,220,000)
(12,880,000)
(14,980,000)
Net property, plant and equipment
9,510,000
9,810,000
10,710,000

Investment in partnerships
5,180,000
4,790,000
4,600,000

Total assets
$42,190,000
$41,560,000
$43,430,000

Liabilities and family equity:

Accounts payable
$ 2,580,000
$ 3,263,000
$ 2,210,500
Short-term debt
2,050,000
2,470,000
1,000,000
Taxes payable
903,000
528,000
802,500
Other current liabilities
8,580,000
7,370,000
7,615,500
Total current liabilities
14,113,000...
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