Costco is doing great job in making sure that revenues constantly grow as shown below while maintaining a proportional amount of expenses to keep the profits the same or a little high from the previous year. Keeping these numbers high during a recessionary period is a very impressive feat by the management of Costco. One number to point out is that 2009 was a down year for Costco, all of the above ratios were lower than in 2008, but they bounced back in 2010 and in 2011. The 2009 year is merely an Outlier in Costco’s financial analysis because of the recession which was at a high in 2009. As the economy bounced back, so did Costco and its bottom line.
Lessons learned: Auditing firms can be held responsible for the misrepresentation of financial information if they don’t practice due care. Auditing firms should asses risky accounts and suspicious transactions to ensure the reliability of the financial statement. Questions 1. Identify legitimate business practices that corporate executives can use for the primary purpose of manipulating or “managing” their company’s reported operating results. Are such practices ethical?
The financial ratios in exhibit 7 show Home Depot has an overall profitability given growth in the market compared to sales and liabilities. Home Depot 5 year average ROC was 15.22% showing a positive company profit as a percentage of total company value and ownership. The ROE was 17.52% indicating a positive combined total worth of the company. The average for Lowe’s was ROC of 6.95% and a ROE of 14.70%. Using these benchmarks, an investor would want to go with the better average and invest in Home Depot.
A conservative model representing current company growth, based on a current calculated growth rate of 3.39%, used a forecasted Cost of Goods Sold (CGS) and Selling, General, Administrative (SGA) of 65.58% and 22.01% of sales respectively (See Exhibit 1a). A more robust growth rate of 6% with a gradual increase over four years was used based on current industry growth and Cooper’s anticipated goals for Nicholson. A rate of 65% and 19% of sales were used for CGS and SGA in this model (See Exhibit 1b.). We feel this comparison helps illustrate potential in the company. EXHIBIT 1.a (Future Cash Flows from Operations) OPERATIONS ($ MILLIONS) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Sales Growth 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% Net sales 55.3 57.18 59.11 61.12 63.19 65.34 67.55 69.84 72.21 74.66 77.19 Cost of goods sold (67.58% of
Accounts payable are recorded in the general ledger and reflected onto the balance sheet. Because Accounts payable involve paying suppliers with checks, it is vital for a company to have good internal controls. There are several fraudulent activities that can occur within this department such as: Forgery - check tampering schemes in which an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line of the check. Check tampering - a form of fraudulent disbursement in which the perpetrator converts an organization’s funds by forging or altering a check drawn on one of the organization’s bank accounts, or steals a check the organization has legitimately issued to another
The company still went public even though the management was aware of their losses. They needed new business strategy that will be a source of revenue for the company. After the internet bubble “burst” it became obvious that NextCard was deceiving investors and other stakeholders. The Feds were able to uncover the fraudulent accounting practices used by the audit team of NextCard. Given PCAOB oversight of accounting firms and the AICPA Code of Conduct, discuss whether or not you believe that public accounting firms can successfully manipulate audit work papers and records of clients engaged in fraudulent activity.
The cost associated with bribery is the abuse of power by the decision-makers and by officers in their respective position. A significant consequence is that bribery and corruption adds to the cost of doing business but, crucially, without adding corresponding value. Instead of the full contract amount going towards the delivery of the product or service, only a portion is productively employed. Another damaging cost to bribery is the unfair evaluations of a tender or procurement bid awarded to the contractor. Bribery promotes inefficiency and ineffectiveness of the business system and adds to the cost of doing business.
If Sheryl Conan uses the direct method as her supervisors wants her to it will distort the cost of goods sold and hides the decline in market value. Investors and stockholders in the company would be harmed if Dick Wright’s preference is used. By using the direct method to write down inventory it would be manipulating critical information that would be used to figure out costs of goods sold; which in turn would give wrong calculations to determine selling prices and to establish profit margins. These incorrect calculations would also mislead possible future investors in the company by not clearly showing the decline in market value. Sheryl Conan should use the allowance method that would reflect that would clearly disclose the decline in market value and not use the other method as her supervisor wants her to.
1. Discuss the Internal control weaknesses that existed at MCI that contributed to the commission of this fraud The big Internal control weaknesses existed at MCI was that Pavlo can manipulate the Account Receivable system which he had helped to create and develop. When the same employee is able to receive payments, update or manipulate accounts receivable records, or even reconcile the company's bank account, he may be able to embezzle money from the company (http://smallbusiness.chron.com/strengths-weaknesses-accounts-receivable-35111.html) that was exactly what happen to MCI with Pavlo, through the following tricks: a) Identifying Account receivables that were going to be written off and converted them into notes receivable, this way expenses are not touched and an Asset is created in the balance sheet. b) Unapplied cash was used to mask the bad debt and slow payments, the allocations of amounts over certain sums of money to delinquent or bad receivables, made the expenses related to the write off of the receivables would not hit the income statement. c) “Placeholder credits” was used.
Individual auditors are responsible because they made unprofessional decisions that tainted the integrity of auditors. Lastly, I feel that the leadership of the Anderson firm focused too much attention on the practice development activities at the expense of the Enron Corporation. 2. In the recent years audit firms have provide other services besides auditing services to their audit-clients, some of these other servicer are: Financial information design and implementation, Bookkeeping or other accounting record statements needs, and some Management functions. For an audit firm given management function advice o their audit clients it could threaten the auditor’s independence by having to evaluate the work of someone that they recommended.