[SOLVED] As a small child, Brooklyn native David

As a small child, Brooklyn native David Brooks loved horses. 1 In 1969, when he was 14 years old, Brooks went to work at a local racetrack as a groom to help support his family. Brooks loved the tough job that involved arriving at the racetrack in the wee hours of the morning, wiping down sweaty horses, wrestling large bales of hay, and â€œmuckingâ€ (cleaning out) horse stalls. Although he wanted to spend his life working in the horse-racing industry, Brooksâ€™ family encouraged him to pursue a more stable and pragmatic career after he graduated from high school. Because he was intrigued by the stock market, David Brooks eventually decided to major in business at one of New York Cityâ€™s prominent universities. The young extrovert relied on a variety of part-time jobs to finance an undergraduate business degree with a concentration in accounting at New York University. Ironically, Brooksâ€™ successful business career provided the path for him to return to his first love. More than three decades after having worked at one of the lowest ranking jobs in horse racing, David Brooks quickly rose to the pinnacle of that sport by spending tens of millions of dollars to establish his own stable, Bulletproof Enterprises. At its height, Brooksâ€™ stable included more than 400 racehorses. In 2004, one of Brooksâ€™ horses, Times are a changing, won the Little Brown Jug, which is the equivalent of the Kentucky Derby for standard bred horses that specialize in pacing. 2 The Brooks Brothers Tangle with the SEC In the mid-1980s, Jeffrey Brooks, David Brooksâ€™ brother and best friend, founded a small brokerage firm, Jeffrey Brooks Securities. Jeffrey recruited David to join the firm and become his right-hand man. Several years later, in 1992, the two brothers ran afoul of the Securities and Exchange Commission (SEC) when one of their sub-ordinates was charged with insider trading. The SEC alleged that the Brooks brothers had failed to establish proper control procedures to prevent their subordinates from improperly using material nonpublic information obtained from their clients. In addition to a $405,000 fine, the SEC filed separate injunctions against the brothers. The SEC banned David Brooks from serving as a director, officer, or employee of a brokerage firm or an investment company for five years. The injunction did not prohibit him from serving as an executive of an SEC registrant that was other than a brokerage or investment company. A few months before the SEC sanctioned the Brooks brothers, David, with the financial backing of his brother, organized a small company based in Westbury, New York, a Long Island suburb of New York City. That company, DHB Capital Group, Inc., which was subsequently renamed DHB Industries, Inc. (DHB is David Brooksâ€™ initials), was intended to serve as the umbrella organization for a corporate conglomerate that Brooks hoped to build. Brooksâ€™ goal was to identify and then purchase small, underperforming companies and convert them into profitable operations by retooling their business models. In 1994, Brooks attemptedâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. 1. Exhibits 1 and 4 present DHBâ€™s original 2003â€“2004 balance sheets and income statements and the restated balance sheets and income statements for those two years, respectively. Review the original and restated financial statements for 2004 and identify the â€œmaterialâ€ differences between them. (Note: You are not required to identify the sources of these differences.) Defend your choices. Exhibits 1 and 4

2. Identify the fraud risk factors posed by DHB for its independent auditors. Which of these factors, in your opinion, should have been of primary concern to those auditors? 3. During the 2004 DHB audit, the companyâ€™s independent auditors had considerable difficulty obtaining reliable audit evidence regarding the $7 million of obsolete vest components that allegedly had been destroyed by a hurricane. What responsibility do auditors have when the client cannot provide the evidence they need to complete one or more audit tests or procedures? 4. What responsibility, if any, do auditors have to search for related-party transactions? If auditors discover that a client has engaged in related-party transactions, what audit procedures should be applied to them? 5. Compare and contrast the internal control reporting responsibilities of the management and independent auditors of public companies. 6. What potential consequences do frequent changes in auditors have for the quality of a given entityâ€™s independent audits? Identify professional standards or other rules and regulations that are intended to discourage auditor changes or provide disclosure of the circumstances surrounding them. 7. David Brooks apparently made threatening remarks to certain of his companyâ€™s independent auditors. What actions should auditors take when they are the target of hostile statements or actions by client executives or employees? 8. Does the SEC have a responsibility to protect the investing public from self-interested corporate executives? Do professional auditing standards or other rules or regulations impose such a responsibility on independent auditors? 9. The audit committee of DHB Industries was criticized for failing to carry out its oversight responsibilities. What are the primary responsibilities of a public companyâ€™s audit committee?

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DHB Industries, Inc. Balance Sheets 2003-2004 (000s omitted) December 31, 2004 2003 Current assets: Cash and cash equivalents Accounts receivables (net) Accounts receivable (related party) Inventories Deferred income tax assets Prepaid expenses and other current assets Total current assets $ 447 $ 441 33,707 47,560 6,583 85,973 54,753 483 372 1,220 142,266 1,518 90,791 Property and equipment, net 2,632 1,819 Other assets: Deferred income tax assets Deposits and other assets Total assets 593 437 366 381 $145,857 $93,428 Current liabilities: Accounts payable Accrued expenses and other current liabilities Notes payable - bank Income taxes payable $ 8,014 $ 9,465 5,635 8,350 4,000 2,000 _14,816 35,180 6,869 23,969 Total current liabilities Long-term liabilities: Notes payable - bank Term loan payable 25,634 22,012 6,500 Other liabilities 1,086 33,220 $ 68,400 502 Total long-term liabilities Total liabilities 22,514 $46,483 Minority interest in consolidated subsidiary 431 207 Stockholders' equity: Preferred stock 1 Common stock 45 41 Additional paid-in capital Accumulated other comprehensive loss Retained eamings Total Stockholders' equity Total liabilities and stockholders' equity 35,540 35,384 41,440 77,026 (53) 11,365 46,738 $145,857 $93,428 Source: DHB Industries, Inc., 2004 Form 10-K. DHB Industries, Inc. Balance Sheets 2003-2004 (000s omitted) December 31, 2004 2003 Current assets: Cash and cash equivalents Accounts receivables (net) 498 $ 441 47,425 33,565 Inventories 30,001 1,424 1,597 67,028 38,231 Deferred income tax assets Prepaid expenses and other current assets Total current assets 19,094 1,219 106,467 Property and equipment, net 2,371 1,771 Other assets: Deferred income tax assets Deposits and other assets Total assets 124 366 381 $109,204 $ 69,304 Current liabilities: Note payable - current portion Accounts payable Accrued expenses and other curent liabilities Income taxes payable Employment tax withholding obligation Total current liabilities $10,500 $ 2,000 8,004 9,642 9,015 5,776 4,931 118 29,718 737 62,168 18,273 Long-term liabilities: Note payable - bank Other liabilities Total long-term liabilities Total liabilities 25,644 22,022 674 26,318 527 22,549 $ 88,486 $ 40,822 Minority interest in consolidated subsidiary 49 (1) Stockholders' equity: Convertible preferred stock Common stock Additional paid-in capital Retained deficit Total stockholders' equity Total liabilities and stockholders' equity 3,000 3,000 45 41 63,776 (46,152) 20,669 62,089 (36,647) 28,483 $109,204 $ 69,304 Source: DHB Industries, Inc., 2006 Form 10-K.

Question: As a small child, Brooklyn native David

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