Pinnacle Manufacturing Essay

1. External users reliance on financial statementsExternal users hope heavily on the financial statement of Pinnacle Manufacturing. Although, Pinnacle manufacturing is a privately held company it incurs a large amount of debt. As a result potential users rely heavily on financial statements.Pinnacle is selling the machine tech division to focus on engine manufacturing, the companys core operations. This causes buyers to also rely heavily on financial statements.In No. 6 the board chooses to finance the construction project mentioned in No. 4 by raising more debt. Again bringing focus to the Financial statements.Likelihood of financial difficultiesThe Solar index finger engine business is focused on habitual transformation of technology, which makes the business riskier than other business and brings astir(predicate) a greater chance of bankruptcy. In No. 1, concerns be expressed about Pinnacles Solar-Electro Division.No. 9 identifies restrictive covenants. The requirements are to keep the period ratio above 2.0 and the debt-to-equity be paltry 1.0. In Part I, the calculation of the current ratio fell below the requirement and thus the need for the loan. anxiety IntegrityIn No. 8 there is a significant turnover amongst higher-level positions. This turnover is perchance intentional and thus a greater chance for fraudulent activities.2. No.1 The acceptable audit risk is Medium. The listener would have to prove that the articles are material. No. 6 Pinnacle Manufacturing is a risky client and the auditors should backtrack and verify each account. The acceptable audit risk is assessed as low. No. 8 Management isever-changing its internal audit team. New members would learn the company and the way the audits are done. The audit risk is low because auditors would not rely on management representation. No. 9 Because the current ratio and debt-to-equity ratio are below the requirements management will constantly check to either increase or decrease current a ssets to meet criteria. Thus the audit risk is low.