Question;CASE STUDYBACKGROUND INFORMATIONSHR Corporation (SHR) is a midsize, publicly traded direct marketer and retailer of outdoor sporting goods based in the United States. Its common stock is listed on the New York Stock Exchange under the symbol ?SHR.?The company prides itself on selling high-quality outdoor sporting goods at competitive prices and providing outstanding customer service. SHR directly markets its merchandise through two major channels?its catalogs and its website?to customers in the United States and nearly 100 other countries. It currently has retail stores and distribution centers in the United States, Canada, and Europe.SHR Corporation recently purchased MVF Company, a manufacturer of high-quality outdoor sportswear. SHR also purchases merchandise from highly reputable vendors in the United States and several other countries.SHR Corporation has enjoyed several consecutive years of sustained growth as reflected in the selected financial information, expressed in millions of dollars (US), presented below:201220112010Total Assets$700.5$546.5$491.3Sales Revenue763.5665.7589.8Operating Income57.545.038.9Net Income34.329.026.0Senior management is continuing its efforts to grow the company, increase its market share, and enhance shareholder value by:?Further expanding its direct sales globally.?Systematically increasing the number of retail stores.?Selectively acquiring other businesses that are aligned with its core competencies.Increasing competition over the past several years has motivated management to continuously pursue new and innovative ways to differentiate SHR?s products, streamline the company?s business processes, and take full advantage of advances in IT. Operating efficiency is a critical component of SHR?s competitive pricing strategy.The risks that concern senior management the most heading into fiscal 2013 include:?The continuing economic slowdown may further decrease discretionary consumer spending, which in turn will adversely affect the company?s sales and profitability.?Mounting competition in the industry may make it increasingly difficult to differentiate the company?s high-quality merchandise at prices consumers are willing to pay.?Deterioration of the company?s brand or its positive image in the marketplace may adversely affect sales and profitability.?Failure to successfully integrate newly acquired businesses may adversely affect the company?s performance.?The inability to generate operating efficiencies and leverage IT may adversely affect the company?s profits.?Placing too much emphasis on operating efficiencies may adversely affect product quality and customer service.During the first six months of 2013, SHR has experienced slower sales growth and higher operating expenses than anticipated. There is growing concern that forecasted performance targets for the year will not be achieved.SCENARIO 1: ETHICAL BEHAVIOR IS GOOD BUSINESSThe concept that ?ethical behavior is good business? is integral to SHR?s strategy. For example, the company?s 2012 annual report includes this statement: ?Sound ethical conduct is a key component of how we do business and continues to contribute significantly to the company?s success.?An illustrative business objective and associated business risk that reflect the company?s philosophy regarding ethical conduct are expressed as follows:Business Objective:To demonstrate sound ethical conduct in everything we do.Business Risk:Disregard for sound ethical principles, either intentional or unintentional, may cause managers and employees to cut corners, embellish performance results, misuse company resources, or otherwise act in a manner that harms the company and its stakeholders.Use the business objective and business risk stated above as the basis for answering the following questions. As he or she deems necessary, your instructor will facilitate the formulation of collective answers to certain questions that will serve as uniform starting points for answering subsequent questions.Scenario 1 Activities1.Management asserts that entity-level controls are designed adequately and operating effectively to reduce the above stated risk to an acceptably low level. Identify the key entity-level controls you expect to find in place if management?s assertion is true. Keep in mind that entity-level controls may exist in any of the five COSO components of internal control (control environment, risk assessment, controls, information and communication, and monitoring). [Note: Students are encouraged to review exhibit CS1-4, but answers should be case-specific.]2.Many elements of the control environment are ?soft? in nature. They may, for example, involve senior management behavior that intrinsically leaves little, if any, audit trail. An example of a soft control that you may have included in your answer to question 1 above is expressed as follows:Senior management fosters a strong corporate ethical climate by what they say and what they do. They lead by example when faced with tough business decisions involving ethical ramifications.a.Identify the audit procedures you would use to determine whether this control exists within SHR Corporation. Be specific.b.Assume that this control does in fact exist within SHR Corporation.1.Identify the audit procedures you would use to determine whether it is operating effectively. Be specific. Keep in mind that you need to build a sufficient body of appropriate evidence to support a valid conclusion.2.Describe the evidence you might find that would indicate operating effectiveness.3.The PCAOB?s Auditing Standard No. 5 indicates that entity-level controls include both (1) controls to monitor other controls and (2) controls to monitor results of operations. Provide an example of each type of monitoring control that would be useful in mitigating the business risk expressed above.
Paper#39582 | Written in 18-Jul-2015Price : $25