Regina Company - Case Study Example

Finance and Accounting- Regina Company February 11, Finance and Accounting- Regina Company Regina false advertising inan ad should not have an effect on how the auditors approached the audit since the vacuum cleaner that was being supplied to the market was substandard and this amounted to a fraud in the sense that the customers were made to believe the cleaner being better than that of the competitor hoover which was not so.2. Regina Company had very many instances of fraudulent activities being carried out some of which were difficult to detect such as the doctoring of sales and earnings figures after the company went public.

This fraud went on unidentified for a long period of time and it made the company create a good image of its success but this was not to go on since the company started experiencing losses when it could not keep up with the fraud. The auditors should have checked the financial records and also identify the source documents for every activity of Regina so as to determine if the figures were the same in all the receipts and the records maintained by Regina.3. Gross margin = (gross profit / sales) * 100 1988 1987 Gross margin = (21,904,000/181,123,000) *100 = (14,878,000/128,234,000)*100 = 12.

09% = 11.60% This ratio identifies how well the production cost has been controlled with respect to the distribution and administration cost.Inventory turnover = cost of sales /average stock 1988 1987Inventory turnover = 94,934,000/39,135,000 =70,756,000/19,577,000 = 2.42 times = 3.

61 times This ratio indicates the efficiency of the company in converting its stock into cash through sales within a year.Accounts receivable turnover = credit sales / accounts receivable 1988 1987Accounts receivable = 181,123,000/51,076,000 = 128,234,000/27,801,000 = 3.55 times = 4.

61 times This ratio shows the number of times that the accounts receivable (debtors) pay within a year. It also shows the efficiency of the company in managing its credit policy.4. Since the auditors detected one ship-in-place transaction they ought to have acted independently and carry out a thorough investigation on the matter even after being told that there was no additional ship-in-place transaction as this is the duty of the auditor to ensure that dig deeper on the issue without trusting the people on the ground as they tend to conceal the truth.5. The auditor is supposed to place little or no reliance on the client inquiries.

The client is only supposed to answer questions when called upon to do so by the auditor and no opinion or suggestion should be taken from the client whatsoever.6. The statement “why don’t you write something to get the stock up?” made by Sheelen to his financial analyst is inappropriate in the sense that it amounts to a fraud on the part of the company and also it is a way of conceal the true value of the company’s stocks from the innocent customers.