Willis & Adams, CPAs

http://ezto-demo.mhecloud.mcgrawhill.com/servlet/TestPilot4/laserwords2/135701 40534352!! !7.tp4/e"3.p#gPlease Note: While the content of this document is very similar to information found on the EarthWear and Willis & Adams, CPAs websites, it contains specific content related to the 201 audit! "his information is applicable to all EarthWear #ini$cases! Background of EarthWear EarthWear Clothiers was founded in %oise, &daho, by 'ames Williams and Calvin (o)ers in 1*+, to ma-e hi)h$.uality clothin) for outdoor sports, such as hi-in), s-iin), fly$fishin), and whitewater -aya-in)! /ver the years, the company0s product lines have )rown to include casual clothin), accessories, shoes, and soft lu))a)e! EarthWear offers its products throu)h three retailin) options1 catalo)s, retail outlets, and its website! When EarthWear founders, Williams and (o)ers, decided to incorporate their company in 1*+2, they searched for an accountin) firm to conduct the company3s approachin) year$end audit! "hey were referred to a bri)ht, youn) auditor that had recently started his own CPA firm, #ichael Willis! Williams and (o)ers were immediately impressed with #r! Willis, and a)reed to have Willis and Company complete EarthWear3s upcomin) audit! Ever since, EarthWear and Willis and Adams have had a stron) relationship! EarthWear decided to )o public in 1*45! Althou)h Willis and Adams audited very few other public companies at that time, EarthWear retained Willis and Adams as the company3s auditor! Outdoor Clothing Industry /ver the past several years, the outdoor clothin) industry has been )rowin) at a steady, moderate pace! "he industry consists of a wide variety of manufacturers that sell products directly to customers or throu)h retail stores, includin) department stores, specialty shops, and catalo) companies! "he industry is hi)hly competitive! EarthWear3s direct competitors include Eddie %auer, 6and3s End, 6! 6! %ean, Pata)onia, and "imberland! EarthWear competes primarily on merchandise value 7.uality and price8, its established customer list, and customer service, includin) fast order fulfillment and un.ualified )uarantees! Management &n late 9ebruary of 201 , EarthWear3s chief accountin) officer:controller %rad ;orton une<pectedly left the company to ta-e a =ob with another clothes manufacturer! #r! ;orton had been with the company since 200 ! &n those ten years, the auditors from Willis and Adams had en=oyed their wor- association with #r! ;orton! "hey found him to be a stron) leader with a )reat deal of personal character! #r! ;orton cited >personal reasons? for his sudden departure from the company! A new controller, Carol #c@ay, was selected in ;ovember! %efore her promotion, #s! #c@ay had been the AP of E<ternal (eportin)! &n her 1 years with EarthWear, #s! #c@ay spent the ma=ority of her time in E<ternal (eportin)! As a result, some e<ecutives .uestioned if #s! #c@ay had the broad s-ill$set needed for such a demandin) position! After interactin) with her durin) some recent meetin)s, even some of Willis and Adams3 professionals .uestioned #s! #c@ay3s .ualifications for the =ob!

EarthWear Hands-on Mini-cases

The McGraw-Hill Companies, Inc., 2014 1

Willis & Adams, CPAs

Accounting and Control Systems With the comple<ity of EarthWear3s customer database reachin) 21!1 million people, and sales occurrin) throu)h catalo)s, retail outlets, and the internet, th e company realized in early 2009 that it was in need of a new, upgraded accounting information system. The company switched to a new, integrated central accounting system in early 2010. The transition to the new system was o erseen and implemented !y the former controller, "rad #orton. This new system maintains integrated in entory, accounts recei a!le, payroll, and general ledger software modules. Although the implementation of the new system was e$pensi e and laden with pro!lems, !y the %rd and &th 'uarters of 2010 the pro!lems were largely resol ed and the company !egan to see the !enefits. The new system integrates the company(s operations and accounting systems and allows )arth*ear(s sales force to promise ne$t day deli ery to telephone and internet customers. As a result, customer satisfaction has increased.

EarthWear Hands-on Mini-cases

The McGraw-Hill Companies, Inc., 2014 2