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Pinnacle Part 2

This document summarizes key situations from a case study about Pinnacle Manufacturing that may impact the company's financial statements and audit risk. Several situations indicate external users should be cautious, such as a new division venturing into an unfamiliar industry, overdue accounts receivable, and taking on debt. Additionally, management integrity is a concern due to related party transactions and high staff turnover. While Pinnacle has been successful in the past, its audit risk is rated medium primarily because of an intercompany loan between divisions that could distort financials. The case outlines inherent risks and affected accounts for each situation.

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Eneng Shofa Shopuroh
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1K views1 page

Pinnacle Part 2

This document summarizes key situations from a case study about Pinnacle Manufacturing that may impact the company's financial statements and audit risk. Several situations indicate external users should be cautious, such as a new division venturing into an unfamiliar industry, overdue accounts receivable, and taking on debt. Additionally, management integrity is a concern due to related party transactions and high staff turnover. While Pinnacle has been successful in the past, its audit risk is rated medium primarily because of an intercompany loan between divisions that could distort financials. The case outlines inherent risks and affected accounts for each situation.

Uploaded by

Eneng Shofa Shopuroh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Integrated Case Application Part 2

1 dari 1

http://www.termpaperwarehouse.com/print/Integrated-Case-Applicatio...

Pinnacle Manufacturing:
A Case Study
Auditing 444
Course Project

Professor Ranauto
August 4, 2013
Pinnacle Manufacturing: A Case Study
Part 2.
Section A.
External users reliance on financial statements.
* Situation 6.: Raising debt to finance a manufacturing plant for Solar-Electro.
* Situation 11.: An intercompany loan to Solar-Electro from Welburn skews the financial statements.
Likelihood of financial difficulties.
* Situation 1.: Solar-Electro may not have the experience, knowledge, and regulations necessary to
succeed in their industry.
* Situation 5.; Auto-Electro comprises a significant portion of Pinnacles accounts receivable and have
not recently made payments.
* Situation 6.: Raising debt for construction may strain Solar-Electros cash flows, as well as Pinnacles.
* Situation 9.: Pinnacle is required to keep its current ratio above 2.0, but it is only at 1.75 and has been
declining over the last three years.
* Situation 10.: Pinnacle has a dispute with the IRS.
Management integrity.
* Situation 7.: A Pinnacle vice president owns Todd-Machinery who provides services to Pinnacle.
* Situation 8.: Increased turnover amongst higher-level auditing staff.
* Situation 10.: Pinnacles dispute with the IRS.
* Situation 11.: The intercompany loan to Solar-Electro from Welburn.
Section B.
Pinnacles acceptable audit risk is medium. The main reason for giving this audit risk a medium is
because of the intercompany loan from Welburn to Solar-Electro. The Solar-Electro division of Pinnacle
is what is risky, but Pinnacle has proven itself with the diesel engine, so the company as a whole does not
show as being risky.
Section C.
Inherent Risk Account or Accounts Affected
Situation 2: Outdated inventory Inventory; Cost of Goods Sold
Situation 3: Computerized Equipment, manufacturing
manufacturing equipment
Situation 5: Accounts receivable Accounts Receiveable; Bad Debt, Allowance for Uncollectible Accounts
Situation 6: New manufacturing Interest Expense, Long-term Liabilities
plant
Situation 7: Todd-Machinery Accounts Payable, Repairs and Maintenance
Situation 8: Internal audit turnover All accounts
Situation 9: Current ratio All accounts
Situation 10: IRS dispute Income Tax Payable, Cash, Retained Earnings
Situation 11: Intercompany loan Accounts Payable, Cash

03/11/2015 15:18

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