Case Analysis: Kroger Company

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FACTORS: Statement “The Risk Assessment Standards establish standards and provide guidance concerning the auditor’s assessment of the risks of material misstatement in a financial statement audit and the design and performance of audit procedures whose nature, timing, and extent are responsive to the assessed risks.” (Risk Assessment, 2017). An auditor doing a risk assessment would look at materiality, results from previous audits both internal and externa, data sources, among others and the auditor must look at the level of risk as well. Reviewing the income statement for Kroger Company there was an increase in Sales/Revenue for the year 2017 over 2016: 115.34B vs 109.83B respectively. While this increase of 5.01% is promising, the company’s …show more content…
The balance sheet reflects assets, owner’s equity, and liabilities as of a specified date such as the fiscal month end period or the year end. Kroger’s Total Assets and Total Liabilities increased in 2017 over 2016: 7.5% and 9.1% respectively. Net Operating Cash Flow decreased 10.1%. These areas need to be reviewed. Kroger has had recent acquisitions and the decrease in cash flow could be an issue with current and future investors. With the decrease in net income and cash flow and the increase in liabilities and assets the audit should review the two prior periods and review the trends. Retained Earnings for Kroger are up 1.53B from 2016 to 2017. While the net income was down over the prior year on the income statement the company still had a significant profit. The audit should review closer the process that Kroger as in place for financing its own asset growth. The retained earnings vs total assets is a 41.41% ratio in 2017 vs 41.1% in 2016 and 40.5% in 2015. The auditor will also need to speak with management and/or executives to understand the future of Kroger as well as its current position.
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These entities generally include a range of programs, activities, functions, structures and initiatives which collectively contribute to the achievement of the department’s strategic objectives.” (The Audit Universe, 2017). So basically the audit universe could be deemed the foundation for an audit.
Kroger has acquired many companies over the recent years and has added new territories and brands to their mix. With the various acquisitions, the company may have caused themselves and issue in that they acquired companies so fast that cash flow was impacted and they have had some issues paying down short term debt. Their current ratio (total current assets/total current liabilities) is .80. This ratio is a depiction of a company’s ability to pay down its liabilities such as accounts payable and debt with assets such as cash, accounts receivable, and inventory. A current ratio less than 1 shows a risk that a company cannot handle paying its debt. The auditor should look at Kroger’s cash transactions, sales, and other assets as well as the recent

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