A&B Bakery is a for-profit business that has been operating for the last 20 years as a
Question:
A&B Bakery is a for-profit business that has been operating for the last 20 years as a popular privately held business. They are known for making wedding cakes, specialty pastries, and made-to-order baked goods. The success of their products is due to several secret recipes which have several patents for their dough mix that keeps the cakes moist and tasty. These recipes have created a loyal following of customers. The owners wish to expand their bakery businesses into other cities and are in need of capital in order to expand. The new capital would be used for new equipment, land, building, hiring new employees, and marketing. The business is owned and run by two brothers (Adam and Ben), has 250 employees, and only one line of credit up to $60 million from a bank that they have used since the inception of their business. The line of credit fluctuates depending on the season. The owners asked a CPA firm to do a financial audit so that the company can become a publicly-traded company and raise funds by issuing stock to the public. Below is a snapshot of the company’s balance sheet for the last year. Property Plant & Equipment
$s 1000’s | 12/31/2008 | ||
---|---|---|---|
Cash | 2,000 | Accounts Payable | 10,000 |
Accounts Receivables | 20,000 | Accrued Liabilities | 15,000 |
Inventory | 15,000 | Line of Credit | 45,000 |
Property Plant & Equipment | 50,000 | Owners’ Equity | 85,000 |
Total Assets | 155,000 | Total Liabilities & Equity | 155,000 |
- Identify and discuss questions that the auditor would need to inquire of the owners of the business in their initial interview and explain why those questions need to be asked.
- Identify and discuss whether or not the initial interview is an indication that the auditor has accepted performing the audit, and explain why or why not.
- What are some of the factors that the auditor needs to consider before accepting an audit?
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen