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1. Your firm has audited CPCI since 2001, when Cleo sold 25% of her company to a group of private investors. The investors receive quarterly
1. Your firm has audited CPCI since 2001, when Cleo sold 25% of her company to a group of private investors. The investors receive quarterly dividends that are calculated based upon a combination of sales and net income. The investors, all experienced business people, serve as Cleo's board of directors and give her advice on the strategic direction of the firm. 2. Your firm has not had any major disputes with CPCI management over accounting issues; however, last year it recommended that CPCI improve the quality of its accounting department which is understaffed and not well organized. 3. I-Iigh-priced mass-m arket hair products represent a highly competitive super-saturated market. Large multi-nationals, make up about 20% of the market with niche companies such as CPCI making up the remaining 30%. Management does not consider multinationals to be a threat. 4. From your review of the 2015 annual report and the 3rd quarter 2015 financial statements, you noted the following financial information: Nine Months Ended Year Ended Sept 30, 2016 Dec 31, 2015 (unaudited) (audited) thousands of dollars thousands of dollars Sales 35 350,000 $ 450,000 Net Income 1,000 1,500 Cash 25,000 30,000 Accounts Receivable 25,000 25,000 Invento 45,000 40,000 Pronert , Plant, and Eunuiment 105,000 160,000 Total Assets 285,000 280,000 Current Liabilities $ 45,000 $ 40,000 5. Cleo plans to expand into Europe and is negotiating contracts with drug stores in the UK and Germany. In order to fund this expansion, lCPCI's bank has agreed to increase CPCI's operating credit line of credit. As part of the agreement, CPCI is required to maintain a minimum quick ratio of 1.2 and a positive net income. In addition, CPCI is required to provide the bank with audited financial statem ents. 6. Your firm has an employee who reads and saves articles about issues that may affect key clients. You read an article that says that two of CPCI's top-selling products recently made \"The Dirty Dozen\" list. The list, developed by an environmental research foundation, highlights those cosmetic products that have toxic chemicals (some of which are cancer-causing). CPCI claims that allits products are safe and meets the provincial and federal health and safety guidelines. You discuss the issue
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