Questions 1. Compute key ratios and other fi nancial measures for Crazy Eddie during the period 19841987. Identify and briefl y explain the red fl ags in Crazy Eddies fi nancial statements that suggested the fi rm posed a higher-than-normal level of audit risk. 2. Identify specifi c audit procedures that might have led to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: (a) the falsifi cation of inventory count sheets, (b) the bogus debit memos for accounts payable, (c) the recording of transhipping transactions as retail sales, and (d) the inclusion of consigned merchandise in year-end inventory. 3. The retail consumer electronics industry was undergoing rapid and dramatic changes during the 1980s. Discuss how changes in an audit clients industry should affect audit planning decisions. Relate this discussion to Crazy Eddie. 4. Explain what is implied by the term lowballing in an audit context. How can this practice potentially affect the quality of independent audit services? 5. Assume that you were a member of the Crazy Eddie audit team in 1986. You were assigned to test the clients year-end inventory cutoff procedures. You selected 30 invoices entered in the accounting records near year-end: 15 in the few days prior to the clients fi scal year-end and 15 in the fi rst few days of the new year. Assume that client personnel were unable to locate 10 of these invoices. How should you and your superiors have responded to this situation? Explain. 6. Should companies be allowed to hire individuals who formerly served as their independent auditors? Discuss the pros and cons of this practice