Make an estimate of tax expense for 2016. Use the 2016 Income before income taxes and apply the current federal statut ory rate of 35% to make your estimate.

What is the ratio of Cost of Revenue to Revenue for the prior year (2015)?

Make an estimate of revenue for 2016. Assume that you expect revenue to be 30% higher than in 2015.

Make an estimate for Cost of Revenues for 2016. Assume that you believe that the ratio of Cost of Revenue to Revenue should be the same as the ratio for the prior year. (Hint: this is the ratio you computed above for #2.) For Revenue, use the amount you computed in #3 above.

Prepare an estimate of General and Administrative costs. Estimate an amount for 2016 based on a 12% increase from the prior year (2015)

What is the percent increase or decrease in net income from 2015 to 2016? This is horizontal analysis.

What is the percentage of operating income to sales for 2016 and 2015? This is vertical analysis.

2016:

2015:

What is the current ratio for 2016 and 2015?

2016:

2015:

What is the debt to equity ratio for 2016 and 2015?

2016:

2015:

Estimate the amount of interest expense for 2016. Assume that the average debt balance for the year is the

beginning of the year long-term debt balance plus the end of the year long-term debt balance divided by two. Assume further that the debt carries an average interest rate of 6%.

What is percent of Foreign Currency Translation Adjustment to Net Income for 2016?

12) What is the percent increase or decrease in Stock Based Compensation expense from 2015 to 2016? Use the Statement of Stockholders Equity to compute this amount.

14) Compute the return on assets ratio for 2016. The return on assets ratio is computed in a manner similar to the inventory and receivables turn ratios. Use average total assets for the denominator and net income for the numerator.

15) Compute an amount for overall financial statement materiality for 2016 using % of total assets.

16) Now imagine that you are analyzing the financial statements of Netflix in order to do an assessment of risk of material misstatement. While you have calculated numerous ratios above, there are undoubtedly many other ratios you would like to compute. For example, the cash flow statement of Netflix is quite interesting and there many proportional relationships to explore. For this question, compute another ratio. Explain why you wanted to compute this ratio as part of your assessment of risk of material misstatement. Then tell me what this ratio tells you about Neflixs financial position. Please label your work appropriately so that I can determine the accounts you used.

17) See the question above. Now compute one more ratio. Explain why you wanted to compute these this ratio as part of your assessment of risk of material misstatement. Then tell me what this ratio tells you about Neflixs financial position. Please label your work appropriately so that I can determine the accounts you used.

Risk Assessment of Netflix

You have computed many ratios, per above. Indeed, there may be more ratios that you wish to compute. Please feel free to do so.

Using your financial analysis please select two account pairs that you believe deserve higher priority in audit effort. Think about accounts in pairs because accounting is a double-entry system - if one account has the potential for misstatement, then that means there is another account, that is also potentially misstated. You may use an account more than once, but the pairs must be different.

Please DO NOT choose CASH as one of your accounts for material misstatement. Most of the accounts on the financial statement interact with the cash account. So, at this stage of risk assessment, choosing this account is not helpful. (However, auditors do test the cash account and frequently the most important reason for doing so is not related to the account balance, but rather to assess the functioning of internal controls over cash transactions.)

Please organize your work so that it is clear as to which accounts

pose a Problem of potential misstatement

the ratio Evidence of potential for misstatement,

Analysis as to the financial statement assertion you believe is associated with the problem and evidence AND, the reason you chose the account pair.

Consistency and coherence in your answer will be very important. The account, the potential problem, the evidence, the assertion and the related account must tell the same story. For example, if you are concerned about the common stock account as having a high potential for material misstatement, then you would not use the inventory turn ratio as your evidence.

Materiality is also a consideration pertinent to your discussion. Consider the materiality amount you computed above to guide you.

Use the tables below to organize Problem, Evidence and Analysis/Assertion.

Pair #1	Problem is the account potentially over or understated?	Evidence Use ratio(s) to discuss how this evidence leads to selecting this account for more audit attention and higher risk of material misstatement. Show or label your ratio so that it is clear that it relates to the potential problem.	Analysis and Assertion - List the most important financial statement assertion that matches your concern with the account at the left. List only one assertion. Explain in words why you chose this account/assertion combination for greater audit attention.
Account
Related Account
Pair #2	Problem is the account potentially over or understated?	Evidence Use ratio(s) to discuss how this evidence leads to selecting this account for more audit attention and higher risk of material misstatement. Show or label your ratio so that it is clear that it relates to the potential problem.	Analysis - List the most important financial statement assertion that matches your concern with the account at the left. List only one assertion. Explain in words why you chose this account/assertion combination for greater audit attention.
Account
Related Account

NETFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year ended December 31 2016 2015 2014 Revenues 5,504,656 3,752,760 607,186 472,321 269,741 402,648 8,830,669 S 6,779,511 $ 4,591,476 824,092 650,788 407,329 305,826 Cost of revenues Marketing Technology and development General and administrative 6,029,901 991,078 852,098 577,799 379,793 Operating income Other income (expense) (150,114) 30,828 260,507 73,829 (132,716) (31,225) 141,885 19,244 (50,219) (3,060) 349,369 82,570 266,799 Interest expense Interest and other income (expense) Income before income taxes Provision for income taxes Net income Earnings per share: 186,678 S 122,641 $ Basic 0.44 S 0.29 $ 0.63 Diluted 0.43 S 0.28 $ 0.62 Weighted-average common shares outstanding: Basic 428,822 438,652 425,889 420,544 Diluted 436,456 431,894 See accompanying notes to consolidated financial statements