2853292/fullscreen/58740780/View 12 (2) - + 90% Problem Statement This case involves King Companies, Inc. which has been discussed in previous chapters. At the company, segregation of duties is poor and internal controls are weak. This case uses IDEA, as well as a further data analytics application, to look for fraud. The data analytics technique is discussed in Chapter 7. To begin this case, students import the data files into IDEA. Students then reconcile the underlying data with the general ledger. Next, students join various data files to create an accounts receivable file and reconcile accounts receivable to the general ledger. Students then use IDEA to create an accounts receivable aging. For problem customers, students export a transactions file back to MS Excel, determine the difference between invoice date and the date the invoice is paid, and analyze how the customer's payment history changes over time. Students then use this information to evaluate the allowance for doubtful accounts. Finally, students are asked to evaluate internal controls over authorizing credit and whether credit is granted to customers in excess of their credit limits. The Problem Itself King Companies, Inc. King Companies, Inc (KCI) is a private company that owns 5 auto parts stores in Los Angeles, California. King Companies 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 and CEO of KCI, 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 King Companies, Inc. 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. Two people are 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, cash disbursements, vendor payments, performing reconciliations, and posting journals. 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 DOD 80 DOD FA F3 54 R % 95 F5 MacBook Air 96 F6 & 27 T Y D 711 F8 8* F9 0 tent/2853292/fullscreen/58740780/View Ch12 (2) -+ 90% entries into the accounting system. Jonathan and Abby often help each other out in busy periods. You obtain the following information from KCI. You obtain a file of all payments for purchases of inventory. According to the general ledger total purchases of inventory for the year ended December 31, 2022 amount to $1,998,732.46. You also obtain a file of total payroll paid during the year ended December 31,2022. According to the general ledger gross payroll expense from the year ended December 312, 2022 amounted to $x,xxx,xxX.XX. Required: a. b. C. d. e. f. Consider the results of your risk assessment in prior chapters with respect to King Companies, Inc. (KCI). Your instructor will give you a data file to use for analysis of KCI's purchases and payroll expenditures. How would you plan ADA as a risk assessment procedure? Prepare the data for your ADA. Based on what you know about KCI and the data file you have obtained from your instructor, document the relevance and reliability of the data used to perform the ADA. Assume you are planning to do a matching procedure to identify potential fraud. Using the data files provided by your instructor, perform the ADA to look for potential misappropriation of assets. Create a visualization to describe the results of the ADA and evaluate the results of the ADA. Based on your findings, draft any appropriate communications with management and those charged with governance of the entity. 0 F3 000 DOD # HI 3 $ 64 4 E F4 % 25 MacBook Air F5 F6 66 & 87 F7 * 00 R T Y D F8 F9