USSC Audit Income

USSC Audit Income Case 1.11 United States Surgical Corporation Q3. Prepare common-sized financial statements for USSC for the period 1979-1981. Also compute key liquidity, solvency, activity, and profitability ratios for 1980 and 1981. Given these data, identify what you believe were the high-risk financial statement items for the 1981 USSC audit. U.S. Surgical Corporation Common Size Income Statement 1979-1981 (000s omitted) 1981 % Sales 1980 %Sales 1979 %Sales Net Sales 111,800 100 86,214 100 60,876 100 Costs and Expenses COGS 47,983 43 32,300 37.5 25,659 42.1 Selling, General And Admin. 45,015 40.3 37,740 43.7 23,935 39.3 Interest 5,898 5.2 4,063 4.7 3,403 5.6 98,896 88.5 74,103 85.9 52,997 87.0 Income Before Taxes 12,904 11.5 12,111 14.0 7,879 12.9 Income Taxes 1,120 1.0 4,226 4.9 2,750 4.5 Net Income 11,784 10.5 7,885 9.1 5,129 8.4 U.S. Surgical Corporation Common Size Balance Sheet 1979-1981 (000s omitted) Current Assts 1981 %Assets 1980 %Assets 1979 %Assets Cash 426 .21 1,243 1.04 596 .85 Receivables (net) 36,670 17.7 30,475 25.6 22,557 31.9 Inventories Finished Goods 29,216 14.1 9,860 8.3 5,685 8.1 Work in Process 5,105 2.5 2,667 2.2 1,153 1.6 Raw Materials 20,948 10.1 18,806 15.8 7,365 10.4 55,269 26.7 31,333 26.3 14,203 20.1 Other Current Assets 7,914 3.8 1,567 2.4 1,820 2.6 Total Current Assets 100,279 48.4 64,618 54.3 39,176 55 Assets 1981 %Assets 1980 %Assets 1979 %Assets Property, Plant, Equip Land 2,502 1.2 2,371 2.0 1,027 1.5 Buildings 32,416 15.6 18,511 15.5 13,019 18.5 Molds and Dies 32,082 15.5 15,963 13.4 8,777 12.4 Mach. Equip. 40,227 19.4 23,762 20.0 12,362 17.5 Allowance for Depreciation (14,953) (9,964) (6,340) Other Assets 14,786 7.1 3,842 3.2 2,499 3.5 Total Assets 207,339 119,103 70,520 Liabilities 1981 %Liability/ 1980 %Liability 1979 %Liability Stock.Eq. Stock. Eq. Stock. Eq. Accounts Payable 12,278 5.9 6,951 5.8 6,271 8.9 Notes Payable 1,596 2.3 Income Taxes Payable 1,685 1.4 Current L-T Debt 724 .35 666 .56 401 .57 Accrued Expenses 5,673 2.7 5,130 4.3 5,145 7.3 Long-Term Debt 80,642 38.9 47,569 39.9 33,497 47.5 Deferred Income Tax 7,466 3.6 2,956 2.5 1,384 2.0 Liabilities 1981 %Liability/ 1980 %Liability 1979 %Liability Stock.Eq. Stock. Eq. Stock. Eq. Stockholders Equity Common Stock 1,081 .52 930 .78 379 .54 Add. Paid-in Capital 72,594 35.0 34,932 29.3 10,736 15.2 Retained Earnings 32,665 15.8 20,881 17.5 13,189 18.7 Translation Allowance (1,086) Deferred Compensation- Issue Restricted Stock (4,698) (2,597) (2,078) Total Stock. Equity 100,556 48.5 54,146 45.5 22,226 31.5 Total Liabilities/ Stockholders Equity 207,339 119,103 70,520 Financial Ratios for U.S. Surgical Corporation 1981 1980 Cash Ratio .0228 .0861 Current Ratio 5.37 4.48 Accounts Receivable Turnover 3.33 2.57 Inventory Turnover 1.11 .75 Gross Profit Percent 57% 62% Profit Margin 11.5 14.1 Return on Assets 7.9 7.4 The common sized income statement was prepared to display all items as a percentage of sales. On the income statement we can see that there was a decrease in cost of goods sold from 1979 to 1980. Cost of goods sold went from 42.1% of sales to 37.5% of sales even though net sales increased. This information along with the increase in the current asset inventory account on the balance sheet indicates a significant increase in inventory held by USSC. Another high risk income statement item was the selling, general and administrative expenses. Included in this category of expenses are research and development costs. The amounts of research and development costs reported dropped significantly. In 1980 they were reported at $3,020,000 and dropped to $1,337,000 in 1981. Also the entire category of selling, general and administrative expenses which included these RD costs decreased as a percent of sales from the previous year. The USSC openly admitted to undergoing a large research and devel opment program to create new products and technology in 1981. The major decrease in costs reported for research and development in 1981 should have caused further investigation by the auditing team. The common sized balance sheet was prepared to display each asset as a percentage of total assets. The percentages for the cash and accounts receivable accounts in 1981 decreased significantly from the previous years while the inventory account increased. This indicates a decrease in liquidity of assets which is also supported by the change in the cash ratio from 1980 to 1981. Another high-risk item would have been the other assets account. United States Surgical Corporation included their patents in this other assets account. They were capitalizing costs associated with the legal defense of a patent that should not have been capitalized. There was a significant increase in this account, $3,842,000 in 1980 to $14,786,000 in 1981. Another red flag would be the significant increase in total long term assets. In 1979 long term assets accounted for 45% of total assets, in 1980 it was 45.7% of total assets and in 1981 long term assets accounted for 51.6% of total assets. USSC was capitali zing costs associated with patents that should not have been capitalized, charging inventoriable production to a long-term assets account molds and dies, and extending the useful lives of some assets and therefore understating depreciation. All of these actions would have caused a significant increase in total long-term assets. A more specific high-risk item was the long-term asset molds and dies. This account doubled in 1981 from the previous year; from $15,963,000 to $32,082,000. The SEC investigation later revealed that USSC was in fact capitalizing production costs and charging them to the molds and dies asset account. Financial ratios were also calculated to determine high-risk items. The current ratio for USSC in 1981 is a little high and has increased from the previous year. In 1981 the current ratio indicated that USSC had $5.37 in current assets for every dollar of current liabilities. This high ratio may indicate that United States Surgical Corporation was overstating their assets. The inventory turnover is low at .75 in 1980 and 1.11 in 1981. The auditing team would have wanted to investigate to find out why inventory was accumulating and not turning over as these numbers indicated. By preparing the common size financial statements and ratios we can identify the high-risk items when performing an audit. The major items for United States Surgical Corporation were the reduced research and development costs recognized despite the increase in research for new products, the major increase in the long-term asset account molds and dies and the other assets account. Q5. Regarding the costs incurred for USSC by Barden, identify (a) the evidence Hope collected that supported USSCs claim that the costs involved tooling modifications and (b) the audit evidence that supported the position that the costs were generic production expenses. What do generally accepted auditing standards suggest are the key evaluative criteria that auditors should consider when assessing audit evidence? Given these criteria, do you believe Hope was justified in deciding that the costs in question were for tooling modifications? Why or why not? The evidence that hope collected that supports USSCs claim that the charges in question were in fact for tooling modifications was the General Manager of Lacey Corporation (A division of Barden Corporation) goes back on his previous statement and confirms that the purchase orders and invoices were in fact for tooling modifications. USSC explained their position and said that they had instructed Lacey to make certain tooling changes that would result in improved efficiency in production of USSC products. When the audit team asked to take a tour of the Lacey plant to examine the actual production process the Lacey General Manger informed the audit team that personnel often mistakenly charge tooling jobs to production. There was more evidence that supported the position that the costs in question were just generic production expenses. Initially the audit team did not notice that the assets were being overstated and there was an issue with the classification. It was the company who does work for USSC that admitted that there were issues with some of the purchase orders and invoices. The Lacey general manager informed the auditors that invoices and purchase orders were being reviewed and that they were for general production work and not tooling modifications as USSC had previously stated. The chairman of the board of directors for Barden Corp. reported that an independent investigation by an outside law firm has concluded that the purchase orders and invoices were in fact for general production work and not for tooling modifications. Finally the Senior Vice President and Treasurer for Barden Corporation refused to sign confirmation that $1 million in charges were for tooling modifications on two occ asions. The key criteria for evaluating audit evidence are relevance, reliability and sufficiency. The evidence must be relevant to audit objective. The auditors must use procedures and documents that are relative to the audit objective. The evidence must be reliable, or must be believable and trust worthy. The sufficiency of evidence has to deal with the quantity of evidence obtained. In my opinion Hope was not justified in deciding that the costs were for tooling modifications. There was not sufficient evidence to come to this conclusion, just some complicated explanations from USSC and inaccurate purchase orders and invoices. The evidence was not relevant to the audit objective. The specific products with modifications should have been traced back to their purchase orders. Instead the auditors just took the explanation of these orders from management. Finally the reliability of the evidence was not high, USSC had a lot to lose if it was concluded that they were indeed general production and the General Manger for Lacey had changed his position numerous times. The only reliable evidence was that of the independent law firm that concluded the purchase orders and invoices were not for tooling modifications. References Knapp, Michael C., United States Surgical Corporation Contemporary Auditing. Real Issues Cases. Sixth Edition (2006), 137-146. Arens, R. Randal, M. Beasley, Auditing and Assurance Services. An Integrated Approach. (2008) 175-176.

Billy Budd †Foreshadowing Essay

Foreshadowing – in which a certain image or event may hint at something that becomes more significant later on in the story. Authors often use different literary devices to grab the reader’s attention, or to establish basis for plot development later on in the novel. In Herman Melville’s Billy Budd, Melville uses the literary device of foreshadowing to allow the audience to be aware of Billy’s inevitable fate before the characters in the novel, thus creating a feeling of suspense within the novel. In chapter one, the incident with the Red Whiskers (12) functions as a foreshadowing of Billy’s confrontation with Claggart. This is very similar to what happens later between John Claggart and Billy (58). Melville uses the incident to show that although Billy Budd is a gentle man, unwilling to quarrel, he can become aggressive if provoked. This makes the later incident more believable, since the reader has already seen Billy behaving in this way. The Red Whiskers is similar to Claggart in a number of significant ways. Like Claggart, the Red Whiskers dislikes Billy, and out of sheer envy he â€Å"bestirs† himself to pick a fight with Billy. Melville begins using foreshadowing early in the novel when he describes Billy Budd as a tall handsome sailor that was well adored by mostly all who knew him. Melville makes Billy seems flawless until he informs the audience using straight, matter of fact sentences that Billy has a speech impediment that only seems to rear its ugly head whenever Billy has something of importance to say (17). The fact that Billy’s speech impediment only shows when he has something significant to say helps inform the audience that something of significant importance will happen later on in the novel (57). Billy’s inability to speak during times of emotion will mean that later, he cannot speak the truth and save himself. Vere’s nickname is ironic in a second way, although the narrator does not point this irony out explicitly. The character referred to as â€Å"Starry Vere† in the Marvell poem is a severe disciplinarian (24), whereas Captain Vere is anything but harsh or brutal in his conduct. But while the name seems ironic  at this point in the story, the passage quoted from the poem provides an important piece of foreshadowing. Vere does indeed impose an unexpectedly harsh discipline upon Billy, and his commitment to principle is what prompts him to be severe (60). Without the element of foreshadowing within Billy Budd it seems almost incoherent that the events of the novel would have come together. Melville’s use of foreshadowing allows him to take the audience on an unforgettable journey through the life and troubles of Billy Budd and allows the audience to get a full understanding of the situations leading up to Billy’s tragic end.

Rationalism - Descartes, Spinoza and Leibniz - 1731 Words

Rationalism is the principle that maintains that through reason alone we can gain at least some positive knowledge of the world. The three major rationalists, Rene Descartes, Baruch Spinoza and Gottfried Welhelm Leibniz, used this idea in order to defy skepticism and expose the true nature of reality. However, each philosopher is frequently in disagreement. The idea for ‘God’, and what constitutes substance, matter and reality are the four key structural beliefs that aid each rationalist in the forming of their arguments. Yet, it is these four concepts and the arguments behind them that cause the inconsistency found in rationalism. The idea that reason can provide positive solutions to the various questions put forth is made doubtful†¦show more content†¦So, relatedly, the monad must not only exhibit properties, but contain within itself virtually or potentially all the properties it will exhibit in the future, and also contain the trace of all the properties it did exhibit in the past. In Leibnizs extraordinary phrase, found frequently in his later work, the monad is pregnant with the future and laden with the past (Monadology, p22). All these properties are folded up within the monad, and they unfold when and as they have sufficient reason to do so. (Monadology p61) The network of explanation is indivisible - to divide it would either leave some predicates without a sufficient reason, or merely separate two substances that never belonged together in the first place. Correspondingly, the monad is one, simple and indivisible. Everything we perceive around us, which is a unified being, must be a single monad. Everything else is a composite of many monads. My coffee cup, for example, is made of many monads (an infinite number, actually). In everyday life, we tend to call it a single thing only because the monads all act together. My soul, however, and the soul of every other living thing, is a single monad which controls a composite body. Leibniz thus says that at least for living things we must posit substantial forms, as the principle of the unity of certain living composites. MyShow MoreRelatedKant vs Aristotle1314 Words   |  6 Pagesthings exist. The traditions of Plato and Aristotle have been dubbed rationalism and empiricism respectively. Under these traditions many well known philosophers have formed their own theories of God, existence and the material world. Through these individual theories I will show how each fits into the category of either Rationalist or Imperialist. The Plutonian p hilosophers to be discussed will include Descartes, Spinoza, and Leibniz. And the Aristotelian philosophers will include Locke, Berkeley andRead MoreThe Influence of Rationalism on the French Revolution1509 Words   |  7 PagesBen Jorgensen Professor Wakefield English 5 3 April 2013 The Influence of Rationalism on the French Revolution What was the driving force behind the French Revolution? Many people may say it was financial, or political, and while I would agree that these things were part of the force that propelled the French Revolution, I would assert that the philosophies of the Enlightenment were the dominant force that blasted late eighteenth century France into revolution . In his article, â€Å"The FrenchRead MoreRationalism vs. Irrationalism1607 Words   |  7 PagesRationalism vs. Irrationalism Jane Evans was spending a week at the Crown Point Ward girls camp. She and her friends were laughing and enjoying the crisp night air. They giggled and talked of crushes on boys and gossiped all night about the notorious girls at school. But the fun stopped when a rat bit one of the girls. Screaming, squirming and frightened, they worried and stayed awake for the remainder of the night. Unable to sleep, they decided to go indoors, to avoid anotherRead MorePlato And Aristotle s Views On Philosophy1107 Words   |  5 PagesAristotle found their way into the rationalism era. Instead of requiring an unknown force to find true knowledge, rationalist believed that everything could be determined with inerrant reasoning. The originator of this line of thought was Rene Descartes. Some say that he is on his own level of original philosophy that the ancient philosophers are on; however, one can see with scrutiny that Aristotle was the source on a couple of his ways of thinking. Bes ides Descartes, another rationalist that followedRead MoreRationalism vs. Empiricism Essay1573 Words   |  7 PagesRationalism and empiricism were two philosophical schools in the 17th and 18th centuries, that were expressing opposite views on some subjects, including knowledge. While the debate between the rationalist and empiricist schools did not have any relationship to the study of psychology at the time, it has contributed greatly to facilitating the possibility of establishing the discipline of Psychology. This essay will describe the empiricist and rationalist debate, and will relate this debate to theRead MoreImmanuel Kant s Philosophy On Philosophy844 Words   |  4 Pagespeople to live  ¨better ¨. Rationalism related with the overview of mathematical approaches into philosophy during the period by the major rationalist figures such as Descartes, Leibniz and Spinoza developed people ´s way of thinking in many different ways. Rationalism is perspective which engage s the rational and deductive reason, an opposite structure from personal experience or teachings as the foundation of knowledge or rationalization. Therefore, the concept of rationalism relies on the knowledgeRead More Descartes Essay1269 Words   |  6 Pages In the early 17th century a philosopher named Descartes, questioned his existence. His life was dedicated to the founding of a philosophical and mathematical system in which all sciences were logical. nbsp;nbsp;nbsp;nbsp;nbsp;Descartes was born in 1596 in Touraine, France. His education consisted of attendance to a Jesuit school of La Fleche. He studied a liberal arts program that emphasized philosophy, the humanities, science, and math. He then went on to the University of Poitiers whereRead More Skepticism and the Philosophy of Language in Early Modern Thought3317 Words   |  14 Pagesearly XVIth century has been considered one of the major forces in the development of modern thought, especially as regards the discussion about the nature of knowledge and the sciences. Richard Popkin in his History of Skepticism from Erasmus to Spinoza (1979) has shown that skeptical arguments were influential in the attack against traditional scholastic conceptions of science, opening the way to the development of the new scientific method. The dispute between those who embraced skepticism andRead MoreThe Contributions Of Descartes And Hume3394 Words   |  14 PagesThe contributions of Desca rtes and Hume towards the issue of establishing: the existence of God Introduction: Arguments for and against the existence of god have been proposed by philosophers, theologians, scientists and others for thousands of years. In Philosophy, these arguments involve primarily the disciplines of Epistemology and Ontology and can be categorized as metaphysical, logical, empirical, or subjective. The epistemic arguments place different restrictions on our ability have knowledgeRead MoreChomsky s Theory Of Human Language1362 Words   |  6 PagesChomsky’s philosophy of language shows a clear influence of rationalistic ideology, for his theories reflect rationalistic ideas of a priori knowledge, manifested in innatism as well as nativism. Philosophers such as Rene Descartes, Gottfried Leibniz, Plato, Immanuel Kant, and Spinoza, greatly influence his philosophical work. Chomsky questions the remarkable speed of language acquisition, devoid of certain sorts of errors one would prima facie expect. Chomsky proposes that the language faculty is part

Antigone Essay - 1759 Words

Antigone It takes a lot of courage to stand up and defend an action or idea that is forbidden by society. This is what Antigone does in Sophocles story Antigone. She clearly disobeys King Creons order that no person should bury Antigones brother, Polynices, which is punishable by penalty of death. In this case, though, is Antigones decision the correct one? Her actions affect many of her other countrymen negatively; they cause problems within the royal family, disagreement among the people and directly relate to the death of three people including her own. By burying her brother Antigone knowingly and willingly went against royal orders and in doing so chooses her own death. She knows as well as anyone in the town that death would†¦show more content†¦It must seem inconceivable to Creon that the gods would ever want a traitor like Polynices buried, let alone with the same ceremony as his brother Eteocles. Creon believes in the gods of the country and he is sure that he is acting in the best interest of Thebes. For if he had decided to bury Polynices it would show him and his country as being week. It would send a message that Thebes is a country that honors its traitors. This could put the country in jeopardy of another attack. One can argue that it is hypocritical for Antigone to walk knowingly into her death when in the previous story Oedipus at Colonus she begged Polynices not to go to war when he knew that he would die fighting Eteocles. Now her sister Ismene is doing the same thing by begging her not to act foolishly. Antigone could have easily prayed for Polynices at her lonesome, and many catastrophes would have been averted. Antigone, however reflecting the stubbornness of her father Oedipus fails to see the flaws in her thinking. She also must have known, or was unable to see through her clouded mind, that whatever she was to accomplish by burying her brother was sure to be erased. More specifically as soon as the body was buried, Creon would decree that it should be uncovered. Would it be worth it for her to risk her life just so that her brother could be buried for a short amount ofShow MoreRelatedAntigone By Sophocles Antigone1525 Words   |  7 Pagesnothing that the gods demand† (1349- 1350). Sophocles’ Antigone takes place in a trying time for the city of Thebes, when Oedipus, their king, and most of the royal family have died, and Creon has just been appointed the new king. Throughout the play, Creon tries on his power as the new ruler, and seems to believe that the gods will not be angry with some of his choices as king, even though they directly violate the divine law. However, in Antigone, when there is a conflict between the divine law andRead Moreantigone987 Words   |  4 Pageshamartia and lastly they need to realize their mistakes and accept their consequences. In Antigone, there are two main characters that fit the criteria of a tragic hero, but only the protagonist, Antigone meets all of the conditions. Antigone meets the second requirement of a tragic heroine, by fulfilling the criteria of being neither entirely good nor completely bad. In the opening of the play, Antigone asks her sister, Ismene to help her give Polynieces a proper burial but Ismene disagrees becauseRead MoreThe Choices Of Antigone And Sophocles Antigone1560 Words   |  7 Pagesthat Antigone and Creon face in Sophocles’ Antigone differ, their decisions often end up pitted against each other’s, inviting comparison. Since I am juxtaposing the characters’ degrees of rightness, I believe that the rightness of the reasoning, not just their ultimate stances, should be examined. The entirety of his or her argument, not just the conclusion, must be taken into account. I’ll also note that my perspective of rightness could and does conflict with that of the gods in Antigone and SophoclesRead MoreCharacterization of Antigone in Sophocles Antigone2448 Words   |  10 PagesSophocles’ tra gic drama, Antigone, presents to the reader a full range of characters: static and dynamic, flat and round; they are portrayed mostly through the showing technique. In â€Å"Sophocles’ Praise of Man and the Conflicts of the Antigone,† Charles Paul Segal takes the stand that there are two protagonists in the drama (which conflicts with this reader’s interpretation): This is not to say that there are not conceptual issues involved in the characters of Creon and Antigone. But the issues areRead MoreAntigone Summary771 Words   |  4 Pagesunburied to rot. Antigone was dejected with Creon’s ruling and decided to bury Polynices herself. She tried to enlist Ismene to help her, but Ismene was to afraid. Antigone furiously continued with the plan on her own. A sentry discovered Antigone and brought her to Creon. Ismene was also brought to Creon and confessed that she had helped Antigone with the burial rites of Polynices. Antigone stopped Ismene and told her not to admit to an act that she had not committed. Antigone took sole responsibilityRead MoreAntigone2454 Words   |  10 PagesAntigone– The Characterization Sophocles’ tragic drama, Antigone, presents to the reader a full range of characters: static and dynamic, flat and round; they are portrayed mostly through the showing technique. In â€Å"Sophocles’ Praise of Man and the Conflicts of the Antigone,† Charles Paul Segal takes the stand that there are two protagonists in the drama (which conflicts with this reader’s interpretation): This is not to say that there are not conceptual issuesRead More Antigone Essay1318 Words   |  6 PagesAntigone Essay In any story or piece of literature, there will always be the main characters to fill the pages with incessant adventure. The characters whose names appear on almost every page and the characters whose actions the story revolves around. However, a story will also always have its minor characters. These are the characters that contribute heavily to the plot, yet arent mentioned quite as often and are underestimated regarding their importance in the story. In the Greek masterpieceRead More Antigone Essay3001 Words   |  13 PagesSUBJECT Antigone is a play about a woman who disobeyed the Kings order to not bury her brother. The play was written by the famous Greek tragedian, Sophocles, in 441 B.C. The story took place in the city of Thebes and the time period is not mentioned. The main characters introduced in the play are of Antigone, Ismene, Creon, and Haemon. The primary focus was centered on Antigone and the consequences she faces after breaking the Kings orders. In the beginning, the author introduced Antigone and herRead MoreEssay on Antigone1426 Words   |  6 Pagesimprudent judgments will ultimately suffer from the consequences of their actions. In Sophocles Antigone, these prejudices notably surface in the form of paternalism as demonstrated through Creons government, highlighting the importance of gender roles throughout the play. Therefore, analyzing the motif of gender roles and its effect on the definition of justice through the perspectives of Ismene, Antigone, and Creon enables the audience to understand how Sophocles macroscopic analogy to humanitysRead MoreAntigone by Sophocles622 Words   |  3 PagesIn the playwright Antigone by Sophocles, the characters reveal their values while exposing a life lessons through their actions, dialogue, thoughts ,and effects on others. Antigone starts with two brothers, Eteocles and Polyneices, being killed at battle. Creon, the king of Thebes, declares that Eteocles’ death will be h onored and Polyneices’ dishonored. He instead will lay unburied to become the food of animals. When the play opens, Antigone takes Ismene, Antigone and Ismene are sisters of the dead