Expert Answer:Asher Farms Inc. Risk Factors, Financial Statement

  

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C A S E
Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt
L EA R N ING OB JE C T IVE S
After completing and discussing this case you should be able to
[1]
Describe the implications of an audit client’s
business environment on the audit engagement
strategy
[2]
[3]
Identify factors affecting an audit client’s
environment and related business risk
Link business risk factors to the risk of material
misstatements in financial statement accounts
INTRODUCTION
Asher Farms, Inc. is a fully-integrated poultry processing company engaged in the production,
processing, marketing and distribution of fresh and frozen chicken products. Asher Farms sells ice
pack, chill pack and frozen chicken, in whole, cut-up and boneless form to retailers, distributors, and
casual dining operators principally in the southeastern and southwestern United States. During its
fiscal year ended October 31, 2014 the company processed 343.6 million chickens, or approximately
2.0 billion dressed pounds. Based on industry statistics, Asher Farms is one of the largest processors
of dressed chickens in the United States based on estimated average weekly processing. Asher Farms’
common stock is traded on the NASDAQ national market with an aggregate market value of $677
million on October 31, 2014.
Asher Farms’ chicken operations presently encompass 7 hatcheries, 6 feed mills and 8
processing plants employing 1,059 salaried and 8,646 hourly employees. The company has contracts
with operators of approximately 530 broiler farms that provide the company with sufficient housing
capacity for its current operations. Asher Farms also has contracts with 173 breeder farm operators
and 44 pullet farm operators.
INFORMATION ABOUT THE AUDIT
Asher Farms is required to have an integrated audit of its consolidated financial statements and its
internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Your firm, Smith and Jones, PA., recently accepted
Asher Farms as an audit client and as a staff auditor you have been asked to obtain some preliminary
information about the poultry industry to provide a basis for understanding the client’s business
environment. Background information about the poultry industry from Smith and Jones’ industry
database is provided for your review.
The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and
Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. Asher Farms Inc. is a fictitious company. All characters and
names represented are fictitious; any similarity to existing companies or persons is purely coincidental.
©
51
R EQ U I R ED
52
[1]
A useful approach for understanding a client’s business environment and associated business
risks is to perform a PESTLE analysis. PESTLE is an acronym for Political, Economic, Social,
Technological, Legal and Environmental factors that are used to asses the client’s business
environment. A PESTLE analysis focuses on factors that may affect an entity’s business model,
but are beyond the control or influence of the client. While beyond management’s direct
influence, such factors may significantly impact an entity’s business risk. Read the background
information about the poultry industry and conduct additional research on the internet to
obtain the latest news and information on the industry. Brainstorm political, economic, social,
technological, legal and environmental factors that could affect Asher Farms’ business risk.
Unless your instructor indicates otherwise, identify at least one business risk factor for each
component of the PESTLE acronym.
[2]
For each of the business risk factors identified in question 1 above, indicate how each risk factor
might impact the risk of material misstatements in specific financial statement accounts or
disclosures.
[3]
Professional auditing standards provide guidance on the auditor’s consideration of an entity’s
business environment and associated business risks. (a) What is the auditor’s objective for
understanding an entity’s business environment? (b) Why does an auditor not have responsibility
to identify or assess all business risks? (c) Provide some examples of business risks associated
with an entity that an auditor should consider when performing an audit. (d) Provide some
additional examples of business risks that might not lead to a risk of material misstatement in
the financial statements.
© 2015 Pearson Education, Inc.
© 2015 Pearson Education, Inc.
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© 2015 Pearson Education, Inc.

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