Case 13-4
Gator Electronics
Background
Gator Electronics Inc. is an electronics manufacturer that sells electronic products to
third-party retail centers in approximately 100 countries. Gator is an SEC registrant. Gator
has identified its reporting units as geographical regions in which it operates, and the chief
decision makers manage and review operating results and performance. Gator’s total assets
as of December 31, 20X3, are approximately $1.6 billion. Revenue and net income for the
year ended December 31, 20X3, are approximately $1.7 billion and $0.1 billion (all
regions)
There overall business mainly has been heavily impacted by the economic landscape
during the most recent years. Due to this situation Gator management has prepared a
strategic plan to improved results through a Sales strategy to modify its portfolio to
increase margin and market penetration and a cost strategy to offset economic pressures
that include elimination of non-profitable products lines and facilities consolidation.
Gator’s strategic plan expects to grow US region EBITDA by 100% during 2014 and by
456% by 2018 when compared to 2013 mainly driven by Product C market launch which
expects to yield benefits by 2015.
Scope
Understand management assumptions driven by their strategic plan and the overall impact
to their cash flow projections. Identify audit procedures to perform to validate
management’s assumptions and compare assumptions with market trends and expectations.
Audit Objectives
During the audit process there are various steps that the engagement team must take to
appropriately validate Gator’s cash flow projections. The first step that should be taken by
the engagement team as stated in AU Section 328.06 is to make sure that statements
