What are the fraud risk factors of KCI, why are they risks, and how will the risk
Fantastic news! We've Found the answer you've been seeking!
Question:
What are the fraud risk factors of KCI, why are they risks, and how will the risk affect my approach to the audit of KCI?
Transcribed Image Text:
King Companies, Inc. King Companies, Inc. (KCI) is a private company that owns five auto parts stores in urban Los Angeles, California. KCI has gone from two auto parts stores to five stores in the last three years, and it plans continued growth. Eric and Patricia King own the majority of the shares in KCI. Eric is the chairman of the board of directors of KCI and CEO, and Patricia is a director as well as the CFO. Shares not owned by Eric and Patricia are owned by friends and family who helped the Kings get started. Eric started the company with one store after working in an auto parts store. To date, he has funded growth from an inheritance and investments from a few friends. Eric and Patricia are thinking about expanding by opening three to five additional stores in the next few years. In October 2021, Eric approached your accounting firm, Thornson & Danforth LLP, to conduct an annual audit of KCI for the year ended December 31, 2022. KCI has not been audited before, but this year the audit has been requested by the company's bank because of anticipated bank loans and by a new private equity investor that has just acquired a 20% share of KCI. KCI employs 20 full-time staff. These workers are employed in store management, sales, parts delivery, and accounting. About 40% of KCI's business is retail walk-in business, and the other 60% is regular customers where KCI delivers parts to their locations and bills these customers on account. During peak periods, KCI also uses part-time workers. Eric is focused on growing revenues. Patricia trusts the company's workers to work hard for the company and she feels they should be rewarded well. The accounting staff, in particular, is very loyal to the company. Eric tells you that accounting staff enjoy their jobs so much they have never taken any annual vacations, and hardly any workers ever take sick leave. There are two people currently employed as accounting staff, the most senior of whom is Jonathan Jung. Jonathan heads the accounting department and reports directly to Patricia. He is in his late fifties and hopes to retire in two or three years and move away from Los Angeles. Jonathan keeps a close watch on accounting and does many activities himself, including opening mail, cash receipts and vendor payments, depositing funds received, performing reconciliations, posting journals, and performing the payroll function. His second employee, Abby Owens, is a recent college graduate who just passed the CPA exam. Abby is responsible for the payroll functions and posting all journal entries into the accounting system. Jonathan and Abby often help each other out in busy periods. Gather information: Identify and explain any significant fraud risk factors for KCI. B I U T₂ T² I E E eTextbook and Media E M M E M 99 á T ¶₁ Analysis: For each fraud risk factor you identify, analyze how the risk will affect your approach to the audit of KCI. o Word(s) King Companies, Inc. King Companies, Inc. (KCI) is a private company that owns five auto parts stores in urban Los Angeles, California. KCI has gone from two auto parts stores to five stores in the last three years, and it plans continued growth. Eric and Patricia King own the majority of the shares in KCI. Eric is the chairman of the board of directors of KCI and CEO, and Patricia is a director as well as the CFO. Shares not owned by Eric and Patricia are owned by friends and family who helped the Kings get started. Eric started the company with one store after working in an auto parts store. To date, he has funded growth from an inheritance and investments from a few friends. Eric and Patricia are thinking about expanding by opening three to five additional stores in the next few years. In October 2021, Eric approached your accounting firm, Thornson & Danforth LLP, to conduct an annual audit of KCI for the year ended December 31, 2022. KCI has not been audited before, but this year the audit has been requested by the company's bank because of anticipated bank loans and by a new private equity investor that has just acquired a 20% share of KCI. KCI employs 20 full-time staff. These workers are employed in store management, sales, parts delivery, and accounting. About 40% of KCI's business is retail walk-in business, and the other 60% is regular customers where KCI delivers parts to their locations and bills these customers on account. During peak periods, KCI also uses part-time workers. Eric is focused on growing revenues. Patricia trusts the company's workers to work hard for the company and she feels they should be rewarded well. The accounting staff, in particular, is very loyal to the company. Eric tells you that accounting staff enjoy their jobs so much they have never taken any annual vacations, and hardly any workers ever take sick leave. There are two people currently employed as accounting staff, the most senior of whom is Jonathan Jung. Jonathan heads the accounting department and reports directly to Patricia. He is in his late fifties and hopes to retire in two or three years and move away from Los Angeles. Jonathan keeps a close watch on accounting and does many activities himself, including opening mail, cash receipts and vendor payments, depositing funds received, performing reconciliations, posting journals, and performing the payroll function. His second employee, Abby Owens, is a recent college graduate who just passed the CPA exam. Abby is responsible for the payroll functions and posting all journal entries into the accounting system. Jonathan and Abby often help each other out in busy periods. Gather information: Identify and explain any significant fraud risk factors for KCI. B I U T₂ T² I E E eTextbook and Media E M M E M 99 á T ¶₁ Analysis: For each fraud risk factor you identify, analyze how the risk will affect your approach to the audit of KCI. o Word(s)
Expert Answer:
Related Book For
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany
Posted Date:
Students also viewed these accounting questions
-
Identify the fraud risk factors posed by DHB for its independent auditors. Which of these factors, in your opinion, should have been of primary concern to those auditors?
-
Identify the fraud risk factors that were present during the Parmalat audits. Rank orders these risk factors from the most important to the least important. Be prepared to defend your rank ordering....
-
Fraud risk factors are events or conditions that indicate I. An incentive or pressure to perpetrate fraud. II. An opportunity to carry out the fraud. III. An attitude or rationalization that...
-
How much momentum does a car of mass 1 5 0 2 KG have a travels at a consistent speed of 1 4 . 3 m / s?
-
A recent court case involved a claim of satellite television subscribers obtaining illegal access to local TV stations. The defendant (the satellite TV company) wanted to sample TV markets nationwide...
-
Ashley's Payroll Services had the following accounts and account balances after adjusting entries. Assume all accounts have normal balances. Account Name Account Value Cash $23,650 Land $24,000...
-
P(z > 2.55) Find the indicated probability using the standard normal distribution. If convenient, use technology to find the probability.
-
How should a projected hypothesis test be modified if youre particularly concerned about (a) The type I error? (b) The type II error?
-
Theory of Planned Behavior Sometimes people would like to change their behaviors. For example, they smoke and want to stop smoking, or they perennially are late to meetings and want to be on time....
-
The Li Group had 202,000 shares of common stock outstanding at January 1, 2024. The following activities affected common shares during the year. There are no potential common shares outstanding....
-
In the fabrication of steel beams, two types of flaws may occur: (1) the inclusion of a small quantity of foreign matter ("slag"): and (2) the existence of microscopic cracks. It has been found by...
-
What is the Pareto principle?
-
Find each limit in Problems 11-18, if it exists. \(\lim _{n ightarrow \infty} \frac{8,000 n}{n+1}\)
-
The SAT scores of entering first-year college students are shown in Figure 18.21. In Problems 13-18, find the average yearly rate of change of the scores for the requested periods. Figure 18. 21 2007...
-
Copy the figures in Problems 13-20 on your paper. Draw what you think is an appropriate tangent line for each curve at the point \(P\) by using the secant method. P X
-
The SAT scores of entering first-year college students are shown in Figure18.21. In Problems 13-18, find the average yearly rate of change of the scores for the requested periods. Figure 18. 21 2006...
-
What policy/policies can the government enact to get the Covid-19 vaccination to quantity ? Explain all briefly
-
A bubble-point liquid feed is to be distilled as shown in Figure. Use the Edmister group method to estimate the mole-fraction compositions of the distillate and bottoms. Assume initial overhead and...
-
Comment on the correctness of the following statement: Since all attest services are assurance services, all assurance services are also attest services.
-
Is an independent status possible or desirable for internal auditors as compared with the independence of a public accounting firm? Explain.
-
Can the client change a set of financial statements to receive an unmodified opinion instead of an opinion qualified as to the adequacy of disclosure? Explain.
-
What are the four main consumer rights?
-
Identify the four levels of a company's ethical environment.
-
What is meant by social responsibility, and why do companies exercise it?
Numerical Analysis For Engineers Methods And Applications 2nd Edition - ISBN: 1482250357 - Free Book
Study smarter with the SolutionInn App