Question: Rainbow Appliance Company has been in business for 10 years manufacturing and selling various household appliances. Four years ago Rainbow had an R&D breakthrough when the developed a new vacuum cleaner and sales for this product took off! The fiscal year of 2018 and 2019 have experienced the most growth. The company currently holds approx. 25% of the household vacuum market in the U.S.
You have been assigned to the 2019 audit of Rainbow. In 2017, Rainbow executive accomplished a leveraged stock buyout and Rainbow has experienced earners per share growth since, with the unaudited 2019 financial statements reflected an earnings per share of $1.21 (up from the 2017 amount of $0.46), which is more than analysts had projected. Sales and net income have also experienced impressive increases over the same period of time.
It's time to start the risk assessment analytical procedures for audit the 2019 financial statements and start planning the nature, timing, and extent of the needed audit procedures. You will begin by identifying areas that may represent the most risk relevant to this year's audit.
Check the balance sheet and income statement for Rainbow. Using the provided analysis data, find accounts that may represent significant risk for this year's audit (2019). For each area, briefly not why you think it represents a risk.
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