Accounting Essay

2375 Words May 22nd, 2016 10 Pages
ISSUES IN ACCOUNTING EDUCATION
Vol. 23, No. 2 May 2008 pp. 299–307

Assessing Audit and Business Risks at Toy Central Corporation

Christine E. Earley and Fred Phillips

INTRODUCTION
[pic]s a senior in a professional services firm, you have been assigned to plan the financial statement audit of a private company named Toy Central Corporation (TCC). In addition, the partner on the engagement has asked you to identify business risks that could adversely affect TCC’s sustained profitability, so that they can be brought to the attention of the company’s board of directors. These tasks will require you to draw on your knowledge of supply chain management, marketing, internal controls, audit assertions, and financial accounting.
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To prepare the memo, you have consulted last year’s audit file (Exhibit 1), findings of interim audit procedures (Exhibit 2), and a memo prepared by the engagement partner (Exhibit 3).

REQUIREMENTS

Develop a planning memo for the TCC engagement based on the information provided in the case. The planning memo should address the following issues:

(1) Business risks.
(2) Audit risk factors.
(3) Accounting issues, related management assertions impacted by these issues, and planned audit approach to address these issues.

Bear in mind that the partner on this engagement is also responsible for many other client engagements. Consequently, while you should endeavor to be direct and succinct in your memo (limiting it to no more than four single-spaced pages), you should avoid assuming that the partner will fully recall all relevant facts, or that she will immediately recognize all important implications of those facts. In short, be sure to describe the specific facts that you consider relevant and explain the implications for the TCC engagement. In addition, you are not expected to outline all audit procedures that would be performed on the engagement. Instead, just provide a general overview of how KDOK might approach the audit for each accounting issue identified.

EXHIBIT 1
Observations Noted in Last Year’s 2006 Audit File

1. TCC’s management advised KDOK that retailers dramatically reduced the quantity of toys they were willing to carry in 2006, and

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