The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. The tools are used in the unique construction of homes, warehouses, and multiunit dwellings. The prices range from $1,000 to $5,000 per unit.

During the audit, the audit team has determined the risk assessment of the client. Consequently, the audit has to respond to the assessed risks of material misstatement at the financial statement and assertion levels. The YOUCPA audit team has asked you, the auditor, to prepare a list of actions that you will take to assess the audit risk.

The following information is available in the year just finished:

• The BakFirn Corporation end-of-year is 12/31/20XX.
• Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.
• The firm is in the construction machine industry, making specialty tools.
• Account receivable days sales outstanding (DSO) has been averaging 90–120 days. The year before, it was 80–90 days.
• Inventory turns have decreased from 3 to 2 per year.
• Account receivable and inventory make up 80% of total assets.
• Internal auditing has been reduced by one person to reduce costs.
• An initial test of controls in cash receipt indicated a lack of following procedures.
• The construction industry is in the third year of a downturn. It is forecasted to last two more years.
• The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.
• Inventory at the end of the year was $2,500,000.
• Account receivable at the end of the year was $2,740,000, or 100 DSO.
• The previous auditors did not disclose any fraud or any management issues at the meeting with BakFirn and YOUCPA. The reason for the auditor change was explained as a costs reduction program.

Assignment Guidelines:

1. Audit Assessment Steps:
   1. What is the initial audit risk? High, medium or low?
   2. What factors made you decide on this level?
2. Audit Plan Assertions
   1. What would you include in the audit plan, and why?
   2. Would you plan a test of controls or substantive tests? Why or why not?
   3. Would these tests make a difference in the nature, timing, and extent of audit procedures? If so, how?
3. Audit Plan Evidence
   1. Would you plan to put reliance on prior-year evidence? Why, or why not?
   2. Would your evidence come from observation, analytical procedures, or other means? Explain your reasoning.
   3. Would the evidence prove or disprove an assertion on the reliance of a specific balance sheet account or financial statement account? Explain your reasoning

Case Study Legal Issues & Ethics Case Study Class Exercise

Background Information

– An architect was asked to design a shopping center in a suburban community

– Although not as large, the client had completed several similar projects

– The architect recognized that the project could be profitable opportunities

– The architect’s previous experience was limited to residential projects, including the client’s home

– The program called for 34,000 square feet of retail space

– For reference, the client provided drawings and specifications from similar previous projects

– The client also had in-house staff to assist with cost estimation, material and system selections,

bidding and negotiation with contractors, and project supervision

– The architect was advised that he developer’s staff would manage construction contract

administration. So, the architect did not provide construction phase services

– The architect and owner signed a standard AIA B101 – 2007 contract with the architect’s fee

based on a percentage of the construction cost.

– The architect completed the work as contracted and, through the mechanical engineer, specified

mechanical systems recommended by the client

– The structural engineer relied on the soil test provided by the client

– The project proceeded appropriately, the architect performed the requested services, produced

the required construction drawings and was paid as agreed

Project Issues

– When the project was put out to bid, costs exceeded the owner’s expectations by 30%

– The owner asked the architect to redesign the project to bring it in on budget without providing

guidance for making the necessary program changes to reduce costs

– The architect explained to the owner that in the current market, price escalations on material and

labor were to be expected and a reduction in scope would be necessary to reduce the budget

– The owner decides to build the project as originally drawn but the only compensates the architect

for work based on the original expectations (30% less than the bids)

– Following completion and for the next two years after occupancy, there were continual problems

with the mechanical systems. Constant repairs were required and, after two years, all main airhandling

units were replaced.

– Cracks in the ceramic floor tiles in several retail spaces were evidence of cracks in concrete

slabs. Although the cracks were not substantial, they resulted in tenant complaints.

– The owner blamed the architect for the problems, demanded compensation to correct the

problems with the concrete slab and the mechanical systems.

– Refusing to pay, the architect indicated that the owner was responsible for all building issues,

stating that the owner did not build the project exactly as it was designed

Answer the Following Questions (as appropriate, use AIA B101 – 2007 as a basis for responses):

– What would be an appropriate method of resolving this dispute? Why?

– Is the owner entitled to compensation? Why/Why not?

– As an architect, how would you handle this situation?

– By not providing construction phase services, what risks did the architect encumber?

– Identify and describe three specific services the architect failed to provide. What risks did the architect

encumber for this decision?

– Ethically, what should have been differently from the architect’s perspective? Why?

“Managing Contract Issues in Business at Home and Abroad” Please respond to the following:

Amanda Tucker, a black female, applied for a sales position in Ames Department Stores in Seattle. After completing her application, she was asked to take a math test and a general aptitude test. As a result of her score, she was disqualified from consideration for the sales position. Based on this scenario, debate whether or not you believe that this testing policy is a violation of Title VII. Make sure to think through both the rights of the applicant and any defenses available to the department store.

• You are the budget director for small school district that has a budget of $10 million and serves 2,500 students in six schools: three elementary schools, two middle schools, and one high school. The school district receives its budget from the city, and the city officials have told you that the city has a deficit and the school budget is being cut by $250,000. The city provides the revenue; however, the school district does have a partnership with a foundation that provides funding for innovative and supportive programs. The budget director must present alternatives to the superintendent.
  • A. What part of the budget would you examine first? Why?
  • B. After that examination, what would you cut? Why?
  • C. Create alternatives so that the superintendent and /or board has choices

• Do you think the federal government should increase spending on Social Security and Medicare for the elderly? If not, how should the elderly fund retirement and medical costs? Provide research support for your positions.

Select at least three basic communication skills from the list below that might be beneficial to professionals within the criminal justice system. Consider how these skills might be beneficial in your current professional role or in a criminal justice role in which you are interested.

• Taking writing seriously
• Having something worth saying
• Making straightforward declarative sentences
• Proofreading
• Writing clearly and without clutter

The Assignment (2–3 pages)

• Describe the basic communication skills you selected and explain how the effective use of each might be beneficial to professionals within the criminal justice system.
• Explain how these basic communication skills might be beneficial in your current professional role or in a criminal justice role in which you are interested.

By Day 7, submit your Assignment.

Support your Assignment with specific references to all resources used in its preparation. You are to provide a reference list for all resources.