FINAL CASE 1.10

1. There were many adjustments that were made in the original balance sheet to properly record overstatements made by DHB Inc. In the current assets, one major entry that was heavily overstated was inventory. Inventory went from $47,560,000 to $38,231,000. The difference of $47,742,000 is a material due to the magnitude of the difference.

Another material difference is deferred income tax assets that went from $483,000 to $19,094,000. Totaling a significant difference of $18,611,000.

Total current assets changed from $142,266,000 to $106,467,000. The majority of the differences of 35,799,000 came from the above.

Under current liabilities, two accounts that were significant were notes payable and income tax payable.

Notes payable was restated for a difference of $10,500,000 and income tax payable had a difference of $9,885,000.

Under stockholder’s equity, one major account that was restated is additional paid in capital. Addition paid in capital had a difference of $28,236,000 ($35,540,000-$63,776,000)

Like the balance sheet, income statement had many adjustments as well. On major change was a net sale of $17,799,000 ($340,075,000-322,276,000).
Cost of Good Sold had a difference of $19,667,000 ($245,940,000 - $265,607,000). Both accounts impacted the gross profit by $37,466,000.

2. Under AU Section 316, it gives the auditor a standard to consider what fraud is in the financial statement. The factors that I believe the auditors should of concentrated was internal controls, related-party transaction and pressure that both management and auditors had.

3. The responsibility that auditors have when the client cannot provide the evidence they need to complete one or more audit test or procedures is to first address this to the audit committee and bod. Additional testing will be required in order to expose the truth