Professional judgment framework
Fraud risk assessment
Part I:
Background
Jameson Family Farms (JFF), a family owned business, grows, processes and packages a range of fruits and vegetables, but primarily specializes in growing and selling peanuts. The company has a niche for selling their particular salted and unsalted peanuts to grocery stores and baseball stadiums in the southeastern region of the US. The product offerings have been stable over the last five years, but the company began internet sales in 2010, which increased sales by about $19 million in 2010 over 2009. The commodity business for peanuts, however, is very competitive and seven to eight major companies vie for US sales. JFF’s has annual audits for lending…show more content… (850,000)
Net sales
22,200,000
22,930,000
25,955,000
26,845,000
97,930,000
Cost of goods sold
(18,620,000)
(19,070,000)
(21,890,000)
(22,500,000)
(82,080,000)
Gross profit
3,580,000
3,860,000
4,065,000
4,345,000
15,850,000
Selling, general and administrative expenses
(2,900,000)
(2,890,000)
(2,880,000)
(2,860,000)
(11,530,000)
Other expense, net
(50,000)
(60,000)
(50,000)
(30,000)
(190,000)
Pretax income
630,000
910,000
1,135,000
1,455,000
4,130,000
Taxes
(189,000)
(273,000)
(340,500)
(436,500)
(1,239,000)
Net income
$ 441,000
$ 637,000
$ 794,500
$ 1,018,500
$ 2,891,000
Statement of cash flows
Nine months ended September 30, 2012
Operating activities
Net income
$1,872,500
Add: non-cash depreciation charges
2,100,000
Changes in operating assets and liabilities:
Increase in net accounts receivable
(1,610,000)
Increase in inventory
(1,220,000)
Decrease in accounts payable
(1,052,500)
Increase in taxes payable
274,500
Increase in other current assets
(440,000)
Increase in other current liabilities
245,500
Cash flows provided by operating activities
170,000
Investing activities
Purchase of machinery and equipment
(3,000,000)
Investment in partnerships
190,000
Cash flows used in investing activities
(2,810,000)
Financing activities
Payment of short- and long-term debt
(3,470,000)
Additional borrowings of long-term debt
4,000,000
Cash flows provided by financing activities
530,000
