Courtney Queen Audit Homework #1 MGT 4041 / 6042 Homework #1 Due Thursday, September 7 Worth 60 Points Note: Students are expected to work independently (i.e., on your own) on all homework assignments. Please type your answers and upload them to T-square. 1. (Question 1-24 from Messier, Glover, & Prawitt) Greenbloom Garden Centers is a small, privately held corporation that has two stores in Orlando, Florida. The Greenbloom family owns 100 percent of the company’s stock, and family members manage the operations. Sales at the company’s stores have been growing rapidly, and there appears to be a market for the company’s sales concept – providing bulk garden equipment and supplies at low prices. The controller prepares the company’s financial statements, which are not audited. The company has no debt but is considering expanding to other cities in Florida. Such expansion may require long-term borrowings and is likely to reduce the family’s day-to-day control of the operations. The family does not intend to sell stock in the company. Required: Discuss at least three factors that may make an audit necessary and potentially valuable for the company. (10 points) If the company is planning an expansion, then it will most likely have to use long-term borrowing to fund it. Banks/investors would be more confident and willing to lend if the company’s information has been reviewed thoroughly and audited. Audits provide assurance to lenders. Unless family is willing to move to other cities in Florida, then they’ll have to be willing to hire managers outside of the family. Because the family can’t be present at all times to oversee what happens at the other branches, then an audit can verify that money hasn’t been manipulated and moved around. Additionally, an audit will help the manager’s regulation and creation of financial statements in the future. The audit will help to provide the manager with confidence that everything is correct. 2. (Question 1-28 from Messier, Glover, & Prawitt) Using the audit report for Home Depot included in your notes, identify and briefly explain the phrases or words that indicate to the users that the financial statements are not necessarily an “exact” representation of the results of operations and financial position of a company. (10 points)
“Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits.” “We believe that our audits provide a reasonable basis for our opinion.” o The auditors are only required to express an opinion on the financial statements. They’re not required to make a definite statement that the financial statements are completely clean. They’re just making a professional judgment based on their audit processes.
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