Pinnacle case study part ii Essay

The company is privately held, but there is a super amount of debt, so the financial bid -whitethorn be used extensively. Also, perplexity is considering selling the Machine-Tech division, which has the potential to result in extensive use of the statement by buyers. 2. point in time 6 in the intend phase indicates plans for excess debt financing. Likelihood of financing difficulties1. The solar power engine business revolves nigh changing technology, therefore making it inherently more stake of exposurey than another(prenominal) business, with a better chance of bankruptcy. The first item in the planning issues raises a concern about the viability of the division, but not the entire company. 2. crash 1 of the case was that the likelihood of financial failure is first-class honours degree, even with the issues of the company. 3. Item 9 in the planning phase requires a current symmetry of 2.0 and if fall below that, this could result in the loan being called. prudence int egrityNo major issues exist that would cause the auditor to promontory the integrity of the management. However, auditor should bring done client acceptance surgical operation before accepting the client. There are a few factors in which fallacious financing reporting may occur. b. Acceptable audit gamble is medium to low because of the factors listed in part (a) and the planned increase in financing and the potential violation of the debt covenant agreement. This might be low because this is the first year audit. c.1. immanent insecurity No effect on inherent risk2. Inherent insecurity The primary concern is the opening night of obsolete inventory, which mends the valuation of inventory at the lower of cost or market. score Affected Inventory, cost of goods soldAudit Objectives Transaction-related3. Inherent Risk There is potential related party transaction, which couldaffect the valuation of the transaction, which could affect the valuation of the transaction and may req uire disclosure as a related party transaction. Account touch Manufacturing equipment, footnoteAudit objectives Transaction-related, initiation and disclosure-related4. Inherent Risk This involves a nonroutine transaction where there is a risk that materials, labor, and overhead are incorrectly applied to the property accounts. Account touch on Property accounts, inventory, cost of good sold Audit objectives balance-related5. Inherent Risk There may be a major collection task with outstanding receivables of 15% from a customer for several months. This could result in an understatement of the earnings for uncollectible accounts. Account abnormal Account receivable, bad debt expense, and allowance for uncollectible accounts. Audit objectives balance-related6. Inherent Risk No effect on inherent risk7. Inherent Risk There may be a related party transaction, which could affect valuation of the transaction and may require disclosure. Account affected Account payable, Repairs expens eAudit objectives Transaction-related8. Inherent Risk This does not affect inherent risk directly, but it is realizable that the turnover of internal audit personnel could increase the risk of fraudulent financial reporting. The turnover may also affect the auditors assessment of control risk. Account affected All accountsAudit objectives transaction, balance, demonstration and disclosure-related9. Inherent Risk In addition to affecting AAR, the auditor should be concerned about the risk of fraudulent financial reporting cod to incentive to make certain that all debt covenants have been met. Account affected All accountsAudit objectives transaction, balance, presentation and disclosure-related10. Inherent Risk An ongoing controversy with the IRS might require adjustment to income tax liability or a disclosure in footnotes for a contingency, depending on the status of the dispute. Account affected Income tax expense and income tax payableAudit objectives balance-related11. Inhere nt risk This situation involves related party transaction because this transaction was not conducted with an extraneous party. It is possible that the related receivable and payable might not have been properly eliminated on Pinnacles consolidated financial statements. Account affected Notes payable, notes receivable, interest expense, and interest income. Audit objectives Transaction and balance-related