Business Essay

554 Words3 Pages
1. Ratios 1984 1985 1986 1987 Inventory Turn over 5.1 5.1 4.3 3.2 Current .92 1.6 1.4 2.4 AR Turnover 52.7 49.8 116.8 32.5 Inventory turnover ratio is important in this case because Crazy Eddie was overstating inventory. A red flag would be the decline of inventory turnover which indicates sales are decreasing but Crazy Eddie has been reporting increases in sales. The current ratio is steadily increasing which shows that they can pay their short term liability but how can this be if inventory ratio is high. The accounts receivable ratio iis decreasing with a big spike on 1986. The decreasing is indicating that they are not receiving the collection of AR in a reasonable time. This as well is a sign that the firm is not receiving cash and sales should not be increasing. 2. a. One way to detect the falsification of the inventory is to do a manual count of a location. This would apply to a double check. The accounting firm took the right measures when they creating a program for the inventory system but Crazy Eddie’s decided to go manual to mislead auditors. b. I would verify the validity of the transactions. This can be done by speaking with the bank or the personal that the debt is owed to. c. I would speak to the customers that receive the merchandise and confirm the price they paid with an invoice. This would allow me to see the revenue being recorded incorrectly. d. I would be suspicious about the consignment if it is either being doubled entered or just entered correctly. I would want to see how they are entering consignment transactions. 3. The client should of looked at how the company is remaining profitable in a declining environment. I would look at inventory to see how frequently it is moving and are they overstating it which they clearly have. I would also see where other firms are getting lows in and compare

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