Ans to Case 1.2 Essay

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2. Aggressive store opening - The company had accumulated store opening costs for each new store in an asset account and then amortized the costs are the 12 month period following the store’s grand opening and more common practice with in the retail industry was to expense such costs in a month that a new store opened. 2.1. cumulative effect of a change in accounting principle during 1996. 2.2. Risks encountered in an inventory valuation 3. Just for feet operated in an extremely competitive industry or sub industry. In this case there are inherent risks factors common to businesses facing such competitive conditions. These can be - Fraud committed by company management collide with clients and deceive auditors - Violation of accounting principles to ever green accounting records - So that the public would misguided or misleader to buy bonds and shares issued by the company. But ultimately these costs are seen when they are unable to meet their obligation. 4. Audit risk factors - Management accepts high level of risk (places significant emphasis on earnings) - Interpreted accounting standards aggressively - Engaged in unique and highly complex transactions - One man rule autocrat (the company practiced creative accounting) - Vendor allowances (high risk area for retail clients ) - Just for feet inventory valuation reserve There are three classes of inventory items to which styles for which the company power required the lower of cost or market rule to be applied: 1. Shoe styles for which the company had four or fewer fairs 2. Shoes and other apparel that were selling for less than cost and 3. Any inventory styles for which no items had been sold during the previous excluded those inventory styles for which no sales had been made during the previous 12 months. The reserve analysis for

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