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Amre Inc Case (Ethics Case) – Principles of Auditing

Amre Inc Case (Ethics Case) – Principles of Auditing
Project description
This is a comprehensive case study
i need you to make sure that you answer each question in the case study
and that you do not copy it from the internet
another thing is that you have to focus on the ethical standards (Code of Conduct/Ethics) and the GAAP principles (Accounting Principles)
it is required in one of the questions to indicate what went wrong, so you need to support your answer by saying which standard was violated
or which standard that need to work with
the essay need to be divided as following:
Read the uploaded case attached and write a solution report in a professional format.:
Introduction or case background
Body of the analysis
Alternative solutions
Implementation plan (if requested)
Appendices Information that is necessary but too lengthy to fit in the report, e.g.
maps, large graphics, computer print outs, etc.
CASE 1 .1; AMRE, Inc.
In the popular movie The Tin Men released in 1987, Richard Dreyfus and Danny
DeVito portray aluminum siding salesmen during the early 19603. The two competi-
tors use every means possible to obtain an unfair advantage over each other. Like
11* other aluminum siding salesmen, the key to success for Dreyfus and DeVito is ob-
fi‘l,‘ taining and vigorously pursuing “leads,” or indications of interest from potential cus-
f. tomers. Leads are not only a key success factor for home siding companies but also
figure prominently in many of these firms’ accounting and control systems. Take the
case of AMRE, Inc, a firm that for nearly two decades sold home siding and inte-
rior refurnishing products such as cabinet countertops. AMRE, short for American
1;} {j Remodeling, began operations in 1980 in Irving, Texas, home of the Dallas Cowboys.
j Within a few years, the fast-growing firm ranked as the largest company in the home
siding industry, an industry historically dominated by small businesses that market
1, their services in one metropolitan area. In 1987, AMRE went public and listed its com-
mon stock on the New York Stock Exchange.
lag: ‘ ‘ AMRE’s principal operating expenses were advertising costs incurred to identify po-
if-f ‘ tential leads via direct mail and television commercials. Throughout the 19803, AMRE
ii}? ‘ charged a portion of its advertising costs each year to a deferred expense account. AMRE
justified this accounting treatment by maintaining that these advertising costs benefited
future periods. Each accounting period, AMRE divided its total advertising costs by the
1 number of new leads generated that period. AMRE then multiplied the resulting “cost per
lead” by the total number of “unset leads,” that is, new leads that had not yet been pur-
sued, to determine the amount of advertising costs to defer. The firm charged the remain-
ing advertising costs for that period to its advertising expense account.
2? AMRE created a computer-based “lead bank” during the mid-19805. When a po-
tential customer contacted AMRE, a clerk collected and then entered information
‘1 in the lead bank that could be Used to‘develop an appropriate sales pitch for that
{5; individual. This infOrmatioh included variables such as age, income, home market
3′: ‘ value, and length of residency. Data for each Sales presentatiOn were also entered in
«1: ‘ the lead bank. This information allowed AMRE to evaluate each salesperson’s per-
5’ formance by computing measures such as sales as a percentage of appointments,
cancellation rate, and average dollar sales per appointment. The control functions
j; _ and data provided by AMRE‘s computerized lead bank contributed significantly to
z the company‘s early success in the intensely competitive home siding industry.
1 , J
ll,” Accounting for “Leeds” Leads to Trouble
53, When AMRE went public in February 1987, the company‘s top officers gave optimis-
tic revenue and profit projections to financial analysts tracking the firm. (At the time,
AMRE’s fiscal year ran from May 1 of one year until April 30 of the next. The com-
pany’s first fiscal year as a public company, fiscal 1988, ended April 30, 1988.) As the
1‘} ” end of AMRE’s first quarter as a public company approached, July 31, 1987, the net
I, l, 1 income projected for that quarter earlier in the year was clearly unattainable.
Robert Levin, an AMRE executive and major stockholder, feared that AMRE’s stock
f,” price would drop sharply if the company failed to reach its forecasted earnings for
the first quarter of fiscal 1988. Levin, a CPA since 1972, served as the company‘s prin-
cipal financial officer and held the titles of executive vice-president, treasurer, and

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