Using current literature, complete Part III of the project which includes the following, in addition to parts I and II:
What are the key acquisition and inventory cycle accounts for each company? What are the critical accounting policies for these accounts? What percent of current assets is tied up in inventory for each company?
What are the key long-lived asset and related expenses accounts for each company? What are the critical accounting policies for these accounts? Calculate and compare cycle-specific ratios (for example, property, plant, and equipment / total assets) that you deem relevant for each company. What are the implications of these differences that you note?
What type of audit report did each company have issued by their auditing firm? Did you note anything unique about the auditor’s report? As a reader of the financial statements, would you prefer that each company had the same audit firm? Why or why not?
A significant liability is most often found under pensions and other postretirement benefits. What is the nature of estimates required to value these liabilities? What risks do these estimates pose for the audit firm? How do you see this risk impacting the planning of future audits with these companies?
Some common numerical thresholds and benchmarks for overall materiality judgments are 5% of net income and 1% of assets. The materiality level at which items are considered clearly trivial-a materiality level where the auditor believes errors below that level would not, even when aggregated with all other misstatements, be material to the financial statements-is generally 5% to 10% of overall materiality. Calculate these numerical thresholds for each company. What is the SEC’s position on the use of numerical thresholds? What other characteristics of potential misstatements should auditors consider when evaluating their materiality?
Based on your analysis of the historical data of both companies, what key elements would you incorporate into a future audit of this company?
Your paper should be a minimum 12-page response covering all 3 parts, not including the cover page and references.
