Elite Running Inc - Case Study Example

The inventory of Elite rose by 39% in 2003 as compared to 2002. The rise in the level of inventory was preplanned by the management in order to be prepared to grab the offers from the suppliers when they offer favorable prices for the company. The changes also indicate that while the sales have declined for the company by 24%, the gross profits have declined by 53.8%. This fall in gross profits was mainly due to the changes in the product prices due to the change in competitive market scenario with the appearance of a new entrant named, Stampy.

The other significant changes include fall of retained earnings of the company by 11.2% and the fall of equity by 8.4%. Explanation for tick-marks b, e & k The explanation for the tick-marks has been explained as follows. Tick-mark b The fall in the accounts receivable of Elite Running Inc. in 2003 as compared to the value of 2003 could be explained by the fall of sales figures of the company. Due to the fall in the level of sales volume of the company, the credit offered for sales also reduced.

Thus the accounts receivable also declined in 2003 as compared to 2002. Tick-mark e The inventory of the company increased by 17 million dollars which is a rise of 39% in inventory level of 2003 as compared to that of 2002. . Tick-mark k Elite running Inc. has faced unprecedented competition in 2003. The management forecasted a 10% rises in the sales as compared to 2002. However, due to entry of a new competitor and offers of a similar footwear and apparel product by the competitor eroded their market share as the customers inclined towards the products offered by Stampy.

This led to the fall of revenue earnings of the company. In order to respond to the changed external environment, the company reduced its product prices. Although, it allowed the company to retain a large number of customers, the gross profit of the company declined. Discussion: auditing and accounting issues for identified changes The accounting and auditing issues identified in the valuation accounts receivable suggest that the valuation of accounts receivables should have been $51m instead of $60m that has been recorded in the books of accounts.

The issue behind this gap is that the management has influenced the accountant and the auditor in disclosing consistent value of aging account (AICPA 18). The accounts receivable figure for a period of less than 30 days has also been suggested to be maintained at 85%. In order to do this, the accounts receivable from the three sales transactions of the new sales and marketing tool of the company, named Andy Dufresne has not been recorded under the assurance of the management. This is an auditing issue as it shows clear deviation from standards of accounting (U.S. Securities and Exchange Commission 1).

The accounting and auditing issue involved in the rise of inventory level of Elite Running Inc. questions the gap between the available information on the receipt of supplier materials as the reason for rise in inventory and the