Bridgford Foods Essay Example for Free

Bridgford Foods Essay Bridgford Foods is known as a small, publicly traded company of the food industry. Clients of Bridgford Foods have a relatively high inherent risk. The operation of the said industry is subject to various risks, such as adverse changes in the general economic conditions, the evolution of consumer preferences, nutritional and health-related concerns, the inspections done, including the processing controls involved in the federal, state, and local products. The liability claims of consumer products and the risks associated with product tampering were also taken into careful consideration. Furthermore, several recalls made were associated with the recent outbreaks of illnesses among the meat and poultry products. Such greatly affected the operating results and the financial position of the company. In addition to this, industry characteristics were related to the factors that affected the assessment of materials of Bridgford Foods Corporation. Since the industry was very competitive, price cutting would have its related effects on the revenue. Unfortunately, Bridgford Foods was not part of the leading industries in the country. In terms of performance, the products of the said company were not as competitive as those of the leaders in the industry. In addition to this, the company is not as profitable and as financially stable as those of the major companies in the industry. For the year 2007, Bridgford Food had a decrease in its total sales, as compared to the other years. In a report issued, the company stated that, â€Å"sales for the first quarter ended in January 25, 2008, and was an estimated $1,319,000. Prior to the first twelve weeks of the fiscal year, there was a decrease in the total, which was 3.1%. The industry factors result in an increased assessment of the risk material misstatement of BridgFord Foods Corporation. This led to a lower determination of detection risk and more substantive tests. Estimations and assumptions were particularly important in the assessment of risks for material misstatement of Johnson, Inc. The management made certain estimations and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. In addition to this, reported revenues and expenses during the respective reporting periods were also given much considerations. The amounts estimated related to liabilities for workers’ compensation, employee healthcare and pension benefits are especially subjected. The inherent risk relating to the accuracy of an account balance that involves a high degree of management judgment, or that is difficult to compute, is evaluated as high. Moreover, the credit risk of the company was diversified across a broad range clients and geographic regions. Losses incurred due to credit risks have recently been immaterial, with the client maintaining the cash balances at financial institutions. At times, these clients exceed the amounts insured by the Federal Deposit Insurance Corporation of $100 million per institution. However, the clients have significant amounts receivable amounts with few of the well known clients, although historically secure, could also be subject to material risk when the operations of these clients begin to deteriorate. Regardless of such dilemma, the members of the Bridgford family can still exercise significant control over the company. This is due to the fact that the family owns approximately 77% in stocks of the company, making them own more than three fourths of the whole company. On top of this, three members of the Bridgford family were members of the Board of Directors. This gives the members of the Bridgford family the ability to exert substantial influence and power over the management and affairs of the company. This include matters requiring the action of shareholders. the amendment to by-laws, the election and removal of directors, merger proposals, consolidation or sale of all or substantially all of the assets and other corporate transactions. The Bridgford family members who own majority of the stocks dominate in the decision making of the company. This factor led to a higher risk assessment of material misstatement fore there were no reviews regarding important decisions and actions taken. However, these should be taken in the best interest of the company and its stockholders. The inherent limitations included the realities of faulty judgments and decision makings, including the breakdowns that can occur due to simple errors and mistakes. Additionally, controls can be circumvented by the individual acts of some people, by collusion of two or more people, or by management override of the control. All the above factors increased inherent risk for a particular account balance assertion, making the evaluation relatively high. In the audit planning stage, where the evaluation of inherent risk for an account balance assertion is high, auditors regard this as a significant risk requiring special audit attention. The control risk of Bridgford foods is low. The client maintains and evaluates a system of internal accounting controls, and a program of internal auditing designed to provide reasonable assurance. In so doing, the company’s assets are protected and transactions were performed in accordance with the proper authorization, and were recorded accordingly. This system of internal accounting control is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by the independent registered public accounting firm and internal auditor. The client also has an established a code of conduct. Furthermore, the audit committee is composed of independent directors who are not officers or employees of the client, and do not have other relationships that impair independence. The audit committees also employ two financial experts. They are effective in overseeing the quality of controls and the management of fraud. From those mentioned, I believe that the accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable, with the overall control risk low. In general, the design and implementation of internal control are considered effective. The increase in the risk of material misstatement due to these factors will result in a lower determination of detection risk and an increase in the scope of the auditors work. Pre-audit engagement risk is significantly and positively associated with the estimated level of discretionary accruals reported in audited financial statements. As higher levels of discretionary accruals have been shown to be associated with higher risk of post-audit litigation, it appears that rather than taking actions that result in higher-risk clients reporting less aggressive discretionary accruals, auditors instead are accepting a higher post-audit risk for these clients.