ACCT 497 summer 2014
Due Monday at the beginning of class
Read the case “The Leslie Fay Companies” from your audit case book. Go BACK in time and assume that your firm, Christensen & Hoffman CPAs, has assigned you to be the audit in-charge (senior) for the upcoming 1991audit of Leslie Fay. You are responsible for reporting any concerns you may have to the engagement partner, Nick Hoffman.
1. Prepare common-sized financial statements for Leslie Fay for the period 1987-1991. For that same period, compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial items do you suggest should be of particular interest during your 1991 ...view middle of the document...
1) Completed templates including common sized income statement and balance sheet & completed ratios
2) What financial data sticks out to you as causing concern & why? (You essentially have the answers given to you as after reading the case, you know the outcome and what/how fraud was created. However, you just need to go back and analyze the financials to see what was present that signaled fraud.)
3) What nonfinancial factors were present that should have also caused concern?
For your common sized financial statements Total Assets & Total Liabilities & Stockholders’ Equity should both be 100% for their relative accounts. (You compare everything as a % of those totals.) For the income statement, we always compare everything back to Total Revenues (or Net Sales in this case). Equations are given for the ratios.
The Leslie Fay Case
1. When I am comparing Leslie Fay’s corporation 1991 financial ratios with the complex industry norms shown in Exhibit 2, I personally do not find many stark differences. I thought in general their liquidity ratios were stronger than the industry averages, whereas their solvency ratios were generally a little weaker. I also felt like that Leslie Fay’s profitability ratios were also very reasonably consistent with the corresponding industry averages.
However something I noticed that the industry norms and Leslie Fay’s 1991 had difference financial ratios involve the age of inventory and receivables measures. I believe those two items should have been major concerns for...