In 1971, 25-year-old Thomas Shine founded a small sporting goods company, Logo 7, that would eventually become known as Logo Athletic. Shine’s company manufactured and marketed a wide range of shirts, hats, jackets, and other apparel items that boldly displayed the logos of the Denver Broncos, Detroit Red Wings, San Diego Padres, and dozens of other professional sports teams. In 2001, Shine sold Logo to Reebok and became that company’s senior vice president of sports and entertainment marketing. In that position, Shine wined and dined major sports stars with the intent of persuading them to sign exclusive endorsement contracts with Reebok.

During his long career, Thomas Shine became one of the most well-known and respected leaders of the sporting goods industry. Shine’s prominence and credibility in that industry took a severe blow in February 2004 when he pleaded guilty to a criminal indictment filed against him by the U.S. Department of Justice. The Justice Department charged that Shine had signed a false audit confirmation sent to him in early 1999 by one of Logo’s largest customers. The confirmation indicated that Logo owed that customer approximately \($700,000\). Although Shine knew that no such debt existed, he signed the confirmation and returned it to the customer’s independent audit firm, Deloitte & Touche, after being pressured to do so by an executive of the customer. As a result of his guilty plea, Shine faced a possible sentence of five years in federal prison and a fine of up to \($250,000\).

At approximately the same time that Thomas Shine was launching his business career in the retail industry in the United States, Harold Ruttenberg was doing the same in South Africa. Ruttenberg, a native of Johannesburg, paid for his college education by working nights and weekends as a sales clerk in an upscale men’s clothing store.

After graduation, he began importing Levi’s jeans from the United States and selling them from his car, his eventual goal being to accumulate sufficient capital to open a retail store. Ruttenberg quickly accomplished that goal. In fact, by the time he was 30, he owned a small chain of men’s apparel stores.

Mounting political and economic troubles in his home country during the early and mid-1970s eventually convinced Ruttenberg to move his family to the United States. South Africa’s strict emigration laws forced Ruttenberg to leave practically all of his net worth behind. When he arrived in California in 1976 with his spouse and three small children, Ruttenberg had less than \($30,000\). Despite his limited financial resources and unfamiliarity with U.S. business practices, the strong-willed South African was committed to once again establishing himself as a successful entrepreneur in the retailing industry. Ruttenberg soon realized that the exorbitant rents for commercial retail properties in the major metropolitan areas of California were far beyond his reach. So, he moved his family once more, this time to the more affordable business environment........

Questions:-

1. Prepare common-sized balance sheets and income statements for Just for Feet for the period 1996–1998. Also compute key liquidity, solvency, activity, and profitability ratios for 1997 and 1998. Given these data, comment on what you believe were the high-risk financial statement items for the 1998 Just for Feet audit.
2. Just for Feet operated large, high-volume retail stores. Identify internal control risks common to such businesses. How should these risks affect the audit planning decisions for such a client?

3. Just for Feet operated in an extremely competitive industry, or sub-industry.
Identify inherent risk factors common to businesses facing such competitive conditions. How should these risks affect the audit planning decisions for such a client?
4. Prepare a comprehensive list, in a bullet format, of the audit risk factors present for the 1998 Just for Feet audit. Identify the five audit risk factors that you believe were most critical to the successful completion of that audit. Rank these risk factors from the least to most important, and be prepared to defend your rankings. Briefly explain whether or not you believe that the Deloitte auditors responded appropriately to the five critical audit risk factors that you identified.
5. Put yourself in the position of Thomas Shine in this case. How would you have responded when Don-Allen Ruttenberg asked you to send a false confirmation to Deloitte & Touche? Before responding, identify the parties who will be affected by your decision.