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Ratio
ROE
ROA
Assets to Equity
Current Ratio
Profit Margin
2010
7.11%
3.77%
1.88
1.92
7.23%
2011
8.94%
4.45%
1.97
1.85
7.02%
Ocean manufacturing does not compare that well with the rest of
its competitors in the home appliance industry. Its return on equity for example, is
8.94% in 2011, so out of all the money the shareholders invested it only
generated a 9% profit. Their competitors however are generating 26.22% return
on what their shareholders invested. However, Ocean Manufacturings current
ratio in 2011, 1.85, is higher than the industry average of 1.44, which means it
can pay its short term liabilities with its current assets.
3. Barnes and Fisher should consider Ocean Manufacturings (OM) reason for
wanting to switch auditors.There seems to be a conflict in how OMs management
reflects year-ends accruals to meet creditors expectations. Also, OMs new IT system
does not accurately record the financial transactions of the company.OMs management
turnover makes it risky to adopt as a new client. Another factor to consider is B&Fs lack
of experience in the home appliance industry. It might not have the knowledge and
experience to properly conduct an audit of OM.
4.
One advantage of B&H offering consulting and audit services is
that it is cost effective for OM to have the same firm offer its services than to look
for a new firm to perform non-audit services. The other is that B&H will gain an
audit and IT client and a chance to break into a new industry. The disadvantages
are that it can lead to biased audits because B&H will be auditing its own work, a
risk of independence if OM goes public.
i.
Because OM is not a public company yet B&H will
be allowed to offer consulting services such as helping OM with its IT
system as long as the CPA firm does not perform management functions
or make management decisions. However because, OM is planning on
becoming a public company and under the SEC B&H will not be allowed
to offer any non-audit services once OM becomes public.
ii.
According to the AICPA, the B&H Salt Lake City
office partner violates the financial interest standards if he has an indirect
interest in OM and if that indirect interest is material to the auditor. The
partner is invested in a venture capital fund that owns some stock of OM.
The Partners investment in OM is one half of a percent so if that amount
is material then it violates the financial interest standards.
5.
a.)
B and F
Audit and Consulting
09/16/2016
To: The Partner
Subject: Accept Ocean Manufacturing as an audit client
Thank you,
Auditor
b.)
B and F
Audit and Consulting
09/16/2016