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2.3 Flash Technologies Memo

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RISK ANALYSIS General Areas of Risk. The following listing specifies general risks facing by Flash (Centennial) Technology: Public high tech companyextensive reliance on audited financial statements, rapidly changing technology Industry Risks: rapid technological change, evolving industry standards, rapid product obsolescence, intense competition Korean Venture and other acquisitions (DCI)does the current management team posses the necessary global management skills, DCI history of losing money, many uncertainties PC Cards represent 98% of salesextreme reliance on one product, what happens if better technology is developed by a competitor Supplier relationsfinancial statements indicate this is a critical issue as the company has only one supplier for some critical components, no long-term contracts exist, and materials shortages occur often Two major customers represent 25% of sales Extreme growthoperating and financial management expertise Short sales of stock increasing Flash 2005 sales to one company and that company is or will be a related party Patent litigation SEC Investigation Allegations that Manny is a pathological liar and has a history of wrong doing As we cover specific risks we ask students to discuss audit implications (i .e., nature, timing and extent of testing). In the actual case the foreign venture was in Thailand and Flash 2005 was Flash 1998. Financial Statement Risks. The following listing includes some of the high-risk areas associated with Flashs financial statements: 3 Beasley / Buckless / Glover / Prawitt Accounts receivable is up significantly and the allowance does not appear to be keeping pace What is the increase in other current assets due to? Inventory up significantly, turnover ratio is only 1.8 suggesting potential problems with obsolescence or existence Rapid increase in sales, is this reasonable, does it raise revenue recognition

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