for the below set of financial statements identify three issues an auditor should focus on. Do not simply list three accounts. Provide a one sentence explanation for why you suspect error or earnings management for each. ( Please also show calculation and explanation)

JUST FOR FEET, INC. BALANCE SHEETS (000s omitted) JUST FOR FEET, INC., 1996-1998 BALANCE SHEETS January 31, 1998 1999 1997 $ 12,412 $82,490 $138,785 Current assets: Cash and cash equivalents Marketable securities available for sale Accounts receivable Inventory Other current assets Total current assets 18,875 399,901 18,302 449,490 15,840 206,128 6,709 311,167 33,961 6,553 133,323 2,121 314,743 54,922 Property and equipment, net Goodwill, net Other Total assets 160,592 71,084 8,230 $689,396 94,529 36,106 6,550 $448,352 6,159 $375,834 Current liabilities: Short-term horrowings Accounts payable Accrued expenses Income taxes payable Current maturities of long-term debt Total current liabilities $ 100,322 24,879 902 $ 90,667 51,162 9,292 1,363 $100,000 38,897 5,487 425 6,639 132,692 3,222 155,706 2,105 146,914 Long-term debt and obligations Total liabilities 230,998 $353,690 24,562 $180,268 10,364 $157,278 Shareholders' equity: Common stock Paid-in capital Retained earnings Total shareholders' equity 3 249,590 76,113 325,706 3 218,616 49,465 268,084 3 190,492 28,061 218,556 Total liabilities and shareholders' equity $689,396 $448,352 $375,834 SXHIBIS 2 JUST FOR FEET, INC., 1996-1998 INCOME STATEMENTS AND STATEMENTS OF CASH FLOWS JUST FOR FEET, INC. CONSOLIDATED STATEMENTS OF EARMINGS (000s omitted) Year Ended January 31, 1999 1998 1997 Net sales Cost of sales Gross profit $774,863 452,330 322,533 $478,638 279,816 198,822 $256,397 147,526 108,871 Other revenues 1,299 1,101 581 Operating expenses: Store operating Store opening costs Amortization of intangibles General and administrative Total operating expenses Operating income 232,505 13,669 2,072 24,341 272,587 51,245 139,659 6,728 1,200 18,040 165,627 34,296 69,329 11,240 180 7,878 88,627 20,825 (8,059) 143 (1,446) 1,370 (832) 4,750 Interest expense Interest income Earnings before income taxes and cumulative effect of change in accounting principle 43,329 34,220 24,743 Provision for income taxes 16,681 12,817 8,783 Earnings before cumulative effect of a change in accounting principle 26,648 21,403 15,960 Cumulative effect on prior years of change in accounting principle Net earnings (2,041) $ 13,919 $ 26,648 $ 21,403 EXHIBIT 2- continued JUST FOR FEET, INC., 1996-1998 INCOME STATEMENTS AND STATEMENTS OF CASH FLOWS JUST FOR FEET, INC. CONSOLIDATED STATEMENYS OF CASH FLOWS (000s omitted) "Year Ended January 31, 1999 1998 1997 Operating activities: Net earnings $ 26,648 $ 21,403 $ 13,919 Adjustments to reconcile net earnings to net cash used by operating activities: Cumulative effect of a change in accounting principle 2,041 Depreciation and amortization 16,129 8,783 3,971 Deferred income taxes 12,100 2,194 (744) Deferred lease rentals 2,655 2.111 1,456 Changes in assets and liabilities providing (using) cash, net of effects of acquisitions: (Increase) decrease in accounts receivable (2,795) (8,918) (3,143) (Increase) decrease in inventory (170,169) (56,616) (76,685) (Increase) decrease in other assets (8,228) (5,643) 271 Increase (decrease) in accounts payable 34,638 7,495 16,628 Increase (decrease) in accrued expenses 7,133 2,264 2,709 Increase (decrease) in income taxes payable (181) 543 (2,506) Net cash used by operating activities (82,070) (26,384) (42,083) Investing activities: Purchases of property and equipment, net of disposals (78,984) (43,446) (33,206) Acquisitions, net of cash acquired (199) (25,548) Purchases of marketable securities (14,726) (44,778) Maturities and sales of marketable securities 51,653 63,132 Net cash used for investing activities (79,183) (32,067) (14,852) Financing activities: Borrowings (repayments) under credit facilities, net (90,667) (9,333) 45,000 Borrowings of long-term obligations 291,076 12,739 479 Principal payments on long-term obligations (132,290) (2,054) (1.335) Proceeds from issuance of common stock, net 20,000 52,900 Proceeds from exercise of options 3,056 804 1,822 Net cash provided by financing activities 91,175 2,156 98,856 Net increase (decrease) in cash and equivalents (70,078) (56,295) 41,931 Cash and equivalents, beginning of year 82,490 138,785 96,854 Cash and equivalents, end of year $ 12,412 $82,490 $138,785