Use/edit the R script, Week3.R, to complete this assignment.

Part 1. Potential Red Flags related to Auditor and Audit Opinion

1.

Who was the auditor for your company during the last year (year = 2019)?

2.

Has your company had a different auditor for any of the other years? If yes, who was the other auditor and

what years were they the auditor?

3.

What was the auditors opinion for your company during the last year (year = 2019)?

4.

Has your company received a different audit opinion for any of the other years? If yes, what was the audit

opinion and what years did they receive it?

5.

What was the auditors opinion over internal controls for your company during the last year (year = 2019)?

6.

Has your company received a different audit opinion over internal controls for any of the other years? If

yes, what was the opinion and what years did they receive it?

2

Part 2. Potential Red Flags Beneish Earnings Manipulation Model

7.

Which company has the highest Beneish M-score for the last year (year = 2019)? What is that companys

probability of manipulation?

8.

What is your companys Beneish M-score for the last year (year = 2019)? What is your companys

probability of manipulation?

Part 3. Potential Red Flags related to overstated assets

9.

Create a plot that shows your companys Average Days to Collect Receivables by year as a line graph.

Copy and paste your plot.

10. Create a plot that shows your companys Average Days to Sell Inventory by year as a line graph. Copy and

paste your plot.

11. Create a plot that shows your companys Long-term Asset Turnover by year as a line graph. Copy and

paste your plot.

12. Create a plot that shows your companys PP&E Turnover by year as a line graph. Copy and paste your

plot.

Part 4. Operating Leases Prior to ASC 842

In this part, you will adjust the balance sheet to treat operating leases as if they were capital leases. For consistency

across companies, in computing the present value of operating lease payments we will assume a 4% discount rate

and that the total of the operating lease payments beyond the fifth year are paid equally over years 6 through 10. We

will adjust the balance sheet adjustment by adding the present value of the operating lease payments to total assets

and to total liabilities.

13. Complete this table.

2015

2016

2017

2018

2019

Total Assets

+ PV of Operating Lease Payments

Adj. Total Assets

Total Liabilities

+ PV of Operating Lease Payments

Adj. Total Liabilities

14. Which company has the largest percentage increase in total assets (i.e, compare total assets to adj. total

assets) after the operating lease adjustment for the last year (year = 2019)? What was their percentage

increase in total assets?

15. For your company, what did they report for Total Assets and Total Liabilities in the 10-Q for the period

ended (near) April 30, 2019. This is the first quarter that companies were required to report under the new

lease standard (ASC 842). You can obtain the 10-Q from the SEC EDGAR website.

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