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Case Study Question Unit 3

In: Business and Management

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JUST FOR FEET, INC. CASE STUDY QUESTIONS 1) Prepare common-sized balance sheets and income statements for Just for Feet for the period 1996-1998. Also, compute key liquidity, solvency, activity, and profitability ratios for 1997-1998. Given these data, comment on what you believe were the high-risk financial statement items for the 1998 Just for Feet audit.

2) Just for Feet operated large, high-volume retail stores. Identify internal control risks common to such businesses. How should these risks affect the audit planning decisions for such a client?
Some internal controls risks common to high-volume retail stores would be theft of inventory, inventory accounting methods, false accounts receivable confirmations, separation of duties, authorization controls, information processing controls, physical controls.
These risks should affect audit planning by focusing tests of these controls including: checking for safekeeping of documents, making sure there is a proper segregation of duties to avoid theft and misstatements, ensuring all transactions are authorized by management, looking closely at A/R confirmations, and the inventory accounting methods used.

3) Just for feet operated in an extremely competitive industry, or sub industry. Identify inherent risk factors common to businesses facing such completive conditions. How should these risks affect the audit planning decisions for such a client?

Inherent risks for extremely competitive industries would include: * strong emphasis on meeting earnings goals * segregation of duties * information processing controls.
The audit plan should include looking into the segregation of duties and making sure that there is transaction authorization, a maintaining of custody of assets, and maintaining recorded accountability in the accounting record. Information processing controls should be…...

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