Pricesmart, Inc, of San Diego, California (symbol PSMT) 10-K for the year ended

Question

Pricesmart, Inc, of San Diego, California (symbol PSMT) 10-K for the year ended August 31, 2015, filed with the SEC October 29, 2015

1. Identify what you think would be a specific risk in the audit of this company(NOT an inherent risk of the industry) and describe:

(A) The audit risk;

(B) Why you think this is a risk related to the audit; and

(C) How you might change your audit procedures to address this risk. Include references to the financial statements in your comments, and if you are making assumptions, state those assumptions.

2. Identify a significant account grouping on the balance sheet and suggest some procedures you think the audit team would use to complete their audit work on the these accounts. (Examples – cash accounts or accounts receivables or inventory)

Explanation / Answer

The audit risk can be mainly due to three types of risk. 1)Inherent risk 2) Control Risk and 3)detection risk.

The specific risk in audit of the company will be control risk . This includes verifying if company is following all accounting principles/controls in their day to day operations .

For the present company we should check mainly their inventory data. As this will mainly affect the Balance sheet and profit and loss of the company.

We have to check which inventory method they are following like FIFO,LIFO, average cost etc. If their is any obsolete inventory are they accountinf for it or not? If the inventory is valued at netcost or market value.

The audit team shoud check in all the warehouses the data collected is accurate and it is reconcilled properly using internal syatems and reported or not. Manually they should selelct and item from list and check if the value reported is correc or not?

2)Account receivable reported in balance sheet should be throughly checked based on the aging of it . If some of accounts are more than 120 days then they have to take 75% of it as bad debt expense. If not it will over estimete the assets by which expenses are under estimated .

In same way obsolete inventory should be written off and fair value of inventory should be reported and any change in fair and book value should be reported in P&L. Goodwill shoul be amortized if necessary.

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