Audit Risk Analysis for Chick-fil-A

The assignment content is an audit risk analysis of Chick-fil-A, a privately held American fast food chain. The report provides an overview of the company's financial health, including its debt-to-equity ratio, net profit ratio, and current ratio, which are compared to those of its major competitor, KFC. The report also analyzes the independence of the audit committee and the board of directors, as well as the filing of form 8K with the SEC. Overall, the analysis suggests that there are no significant audit risks or concerns that would impact the company's growth prospects.

Auditing
Table of Contents
Description and history of the company................................................................................................1
The statement that the potential client should or should not be accepted..........................................1
Company and industry description........................................................................................................2
The independent status of Board of Directors......................................................................................2
Independence of Audit Committee.......................................................................................................2
Filling of 8K............................................................................................................................................2
Ratio Analysis........................................................................................................................................3
Conclusion.............................................................................................................................................3
References........................................................................................................................................4

Audit Risk Analysis of Chick-fil-A
Description and history of the company
Chick-fil-A is an American fast food chain of restaurants which has around 2200 restaurants in
different parts of the United States. The company was founded in the year1946 and is well known
for chicken sandwiches. According to the data collected in 2018, it is the third largest fast food
restaurant chain after Wendy's and McDonald's. The company was also recognized as "Top Chicken
Restaurant Brand" of America in 2015.
The company was founded by Dwarf House through a diner called The Dwarf Grill in the Atlanta
suburb. Though the years, the restaurant gained success through its specialized chicken products.
The founders of the company conducted business based on customer-centric decisions and taking
care of the employees of the company (García Blandón & Argilés Bosch, 2013).
The statement that the potential client should or should
not be accepted
Being the audit manager of the public accounting firm, it is our responsibility to access the audit
client before they are accepted. It is required in order to ensure that no such audit client is accepted
for which our organization does not have the requisite manpower, knowledge or expertise.
For the reasons given below, I recommend that Chick-fil-A should be accepted as an audit client:
 As the fast food industry is one of the growing industry, there is a huge amount of data
available which can be used for reviewing the performance of the company and conducting
an audit.
 The audit committee of the company is an independent body which can help provide the
necessary information required for conducting the audit.
 Securities and Exchange Commission provide sufficient guidelines which can be used for
auditing the financial reports of the company (Mohseni, 2014).
 As the company prepares and presents its financial statements according to GAAP principles,
it is easier to review and build an opinion on such financial reports.
 As the fast food industry is one of the competitive industry with a large number of
competitors, it is easier to compare the financial position of the company with other
companies in the industry.
 The audit regulatory body provides sufficient procedures and policies about conducting the
audit of such organization.
 As the board members, both independent and dependent are from a high successful
background, they are expected to provide all the necessary information required to conduct
an audit independently.
Thus the expertise held by our firm would be adequate and sufficient to conduct the audit
review of the financial reports of the company. These financial statements can be reviewed for
providing an opinion upon the fairness of the reports to the users and SEC.
However, some of the key auditor's concern which should be reviewed are as follows:

 The death of Truett Cathy has created a position of uncertainty about the growth prospects
within the company, Under his guidance and leadership, the company has attained new
heights which seems challenging with the new leader.
 Another concern area is the size of the operations of the company which would require
more number of auditors to perform the review (Ohta, 2010).
Company and industry description
The industry in which the company operates relates to the fast food industry. The fast-food industry
is one of the growing industry in the western part of the world due to the changing lifestyle of the
people in this region. The growth in business and job opportunities had led little time for people to
cook and prepare food at home. The fast moving generation is highly dependent on the outside food
which is quickly available and high in quality. Therefore companies like KFC, Mc Donald see immense
growth rate.
Some of the research reports indicate that fast food is the most growing industry in the United
States and values around 198.9 billion dollars. It also expected that this industry would reach a value
of 223 billion by the end of 2020. The growth in this industry has been through the franchise entry
mode of a quick service restaurant chain. The revenue of Mc Donalds itself is 26.62 billion USD in the
year 2018. The annual growth rate of this sector is around 1.4%.
The independent status of the Board of Directors
 Tim Tassopoulos – President and Chief Operating Officer
 James H. Blanchard- He serves as the chairman of the board of advisors for Jordan Blanchard
Capital, LLC.
 Michael T. Duke- He is the retired president and CEO of Walmart stores.
 Dr. Crawford W.Loritts- He is the nationally known speaker and author of Fellowship Bible
Church.
 James Buck B Mccabe- He is the vice-president of Chick-fill-A.
The board of the company includes around 13 members out of which 5 are independent. There have
some recent changes in the board of directors of the company. Seven new members were added to
the board in the year 2015. Apart from the existing 6 members, the total members of the board now
form 13 members team.
The analysis of the independence of the directors is important for the investors and analysts to
indicate the level of influence of the owners and majority shareholders on the operations of the
company. The independent shareholders also help to critically view the reports of the company and
suggest improvements which can affect the future growth of the organization.

Independence of Audit Committee
The audit committee of the company is served by the members like Dan Cathy, Trudy Cathy, and
Donald Cathy. The chairman of the audit committee is the senior vice president of finance which is
James B. Mccabe.
The audit committee has some independent board members which continuously review the role and
responsibilities of such committee. The independence of the audit committee is important and
required according to the policies of the SEC. This independence helps the committee perform its
role in accordance with the required standards without any influence of the internal board members
(Tarashevskyi, 2018).
Filling of 8K
As the company Chick-fill-A is not a public company, it does not file form 8K with SEC. The form 8K is
required to be filed by the public companies in the United States, as required by the Securities and
Exchange Commission. This form indicates all the events of the company which is important for the
shareholders. Along with the annual reports of form 10k, form 8k is mandatory for all the public
companies.
Ratio Analysis
The ratio analysis helps us to understand the health of the company in relation to its major
competitor, KFC are as follows:
Debt to Equity Ratio 0.40 1.58
Net profit ratio 4.6 Net loss
Quick ratio 0.86 1.11
Current ratio 0.88 1.32
Conclusion
Based on the above analysis of the health of the company, we see that there is no such audit risks or
concern areas which is evident. The information on the company in media in news is sufficient to
know details about its operation and performance. Apart from that, the financial statements of the
company are well presented with an indication of the followed procedures and guidelines of the
accounting standards. Though it is a privately held company, the board is accountable to the
independent directors, customers, and employees. Such standards of ethics and values provide
sufficient confidence in the growth prospects of the organization.

References
García Blandón, J., & Argilés Bosch, J. (2013). Audit tenure and audit
Qualifications in a low litigation risk setting: An analysis of the Spanish
market. Estudios De Economía, 40(2), 133-156. doi: 10.4067/s0718-
52862013000200002
Mohseni, A. (2014). Audit Approach to Audit Risk Management, Quantitative
Determination of the Components of Audit Risk and Determine the Impact on
the Components of Audit Risk in Audit Sampling. SSRN Electronic Journal.
doi: 10.2139/ssrn.2440412
Ohta, Y. (2010). A Comparative Game Analysis on Limited Auditor Liability,
Audit Quality, Audit Risk and Audit Fees. SSRN Electronic Journal. doi:
10.2139/ssrn.1531073
Tarashevskyi, M. (2018). The analysis of methodical approaches of the risk
assessment organization. Technology Audit And Production Reserves, 3(4(41),
34-40. doi: 10.15587/2312-8372.2018.135482