Question

You are considering an audit engagement with a new, privately-held entrepreneurial company (Moxy, Inc.) headed by Ryan Morris, a charming CEO. The company specializes in chemical lawn treatments. Ryan indicates that his business has really taken off and he shows you last year’s financial statements which show sales growth increase from $1,200,000 to $4,500,000 and gross profit growth from $575,000 to $2,800,000 in just one year. He has had to finance this growth with an $850,000 short-term promissory note, but would like to go public and attract investors. He also gives you the following limited information from his balance sheet:


Required:
1. Discuss why engagement risk, professional skepticism, and assessment of fraud risk is important in this scenario.
2. Calculate the current ratios for Year 1 and Year 2. What concerns do these calculations raise?
3. Present at least three questions you would like to ask Ryan about the information provided, before making your decision about accepting theclient.


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  • CreatedJanuary 21, 2015
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