Northern Frontier Parks
Andrew Johnson
Professor Sander
Accounting 497
18 February 2015
Northern Frontier Parks, Inc.
1. After reading the case, I would say that the engagement risk the auditors are facing is fairly high. Up until 1999, George Newton, the current CEO/CFO of Northern Frontier Parks, Inc., was responsible for creating the financial statements, which were not being audited or reviewed by anybody. This is an issue because without an audit, there is no way to ensure the company’s financials are being correctly stated. George Newton wanted to base the purchase price of the shares on a multiple of net income, which is concerning because he could’ve been fraudulently reporting the financials of NFP in order to set a favorable price for himself since nobody was auditing his work.
2. Understatement of income would be a bigger risk in this audit of NFP. Because the purchase price of shares is going to be based on a multiple of net income, an understatement would lead to a lower price. This would allow George Newton to scoop up all of the Kramer family shares at a low price, which could’ve been his plan the entire time he was creating the unaudited financial statements.
3. My biggest concern in terms of pre audit risk material misstatement would be with the restoration and other costs account. The unaudited income statement listed this account as being 5.9% of the total revenue for the year, which is substantially different than the .3% it’s listed as on the audited income statement. If George Newton had been fraudulently preparing the financial statements, this would’ve been an easy account to misstate because “other costs” could really be anything. He could’ve easily created false expenses and put them into this account to drive down the net income. Along with the restoration and other costs account, I believe the animal feed and care, interest expense, cost of animal sales, and depreciation and fence replacement accounts could also be potential high risks for material
Professor Sander
Accounting 497
18 February 2015
Northern Frontier Parks, Inc.
1. After reading the case, I would say that the engagement risk the auditors are facing is fairly high. Up until 1999, George Newton, the current CEO/CFO of Northern Frontier Parks, Inc., was responsible for creating the financial statements, which were not being audited or reviewed by anybody. This is an issue because without an audit, there is no way to ensure the company’s financials are being correctly stated. George Newton wanted to base the purchase price of the shares on a multiple of net income, which is concerning because he could’ve been fraudulently reporting the financials of NFP in order to set a favorable price for himself since nobody was auditing his work.
2. Understatement of income would be a bigger risk in this audit of NFP. Because the purchase price of shares is going to be based on a multiple of net income, an understatement would lead to a lower price. This would allow George Newton to scoop up all of the Kramer family shares at a low price, which could’ve been his plan the entire time he was creating the unaudited financial statements.
3. My biggest concern in terms of pre audit risk material misstatement would be with the restoration and other costs account. The unaudited income statement listed this account as being 5.9% of the total revenue for the year, which is substantially different than the .3% it’s listed as on the audited income statement. If George Newton had been fraudulently preparing the financial statements, this would’ve been an easy account to misstate because “other costs” could really be anything. He could’ve easily created false expenses and put them into this account to drive down the net income. Along with the restoration and other costs account, I believe the animal feed and care, interest expense, cost of animal sales, and depreciation and fence replacement accounts could also be potential high risks for material