Company Operation & Auditors
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This research examines the application of professional judgement by the auditors for Sears Canada Inc. in the prepara tion of the company's 1989 financial operating and position statements. This examination is limited to the consideration of professional judgement applied to a specific aspect of the company's operation. The aspect of the Sears Canada operation examined involves the company's 44 percent equity interest in Photo Engravers & Electrotypers Limited, which is the company which prints Sears Canada catalogues.1 THE ASPECT OF SEARS CANADA'S OPERATIONS EXAMINED Photo Engravers & Electrotypers Limited is an independent corporate entity, in which Sears Canada Inc. holds a 44 percent equity position. Although the company is an independent cor porate entity, its operations are heavily dependent upon its business relationship with Sears Canada Inc.2 Approximately four fifths of Photo Engravers' annual revenues are generated 1Sears Canada Inc., Annual Report 1989 (Toronto: Sears Canada Inc., 1990), 2, 11. 2Canadian Broadcasting Company, "Report on the Labor Dis pute at Photo Engravers and Electrotypers Limited," Reported on "As It Happens," radio program, October 1989. through the printing of catalogues for Sears Canada Inc.3 The loss of the Sears Canada catalogue business, thus, would be devastating for Photo Engravers. In the Spring of 1989, the management at Photo Engravers locked out union employees in a major
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ears Canada earnings from opera tions.15 Over both the short term and the long term, this earnings reduction would be financially detrimental to Sears Canada.
3. Third, Photo Engravers would, if it lost the Sears Canada catalogue business, likely be forced out of business. If the company were forced to cease operations, Sears Canada could expect to lose most of the value of its 44 percent equity position in Photo Engravers. In 1989, investments in associ ated companies were carried on Sears Canada's balance sheet at $26.7 million, or 1.2 percent of the company's total assets.16 Over the long term, the loss of the equity value in Photo Engravers would not represent as serious financial blow to Sears Canada. Over the short term, however, recognition of such an equity loss would have a significant impact on Sears Canada net income.
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15Sears Canada Inc., 16.
16Ibid., 15.
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THE TREATMENT OF THE PHOTO ENGRAVERS SITUATION
BY TOUCHE ROSS & COMPANY IN THE PREPARATIONOF FINANCIAL OPERATION AND POSITION
STATEMENTS FOR SEARS CANADA
In the preparation of the 1989 financial operations and position statements for Sears Canada, Touche Ross & Company, the auditors, (1) reported the Sears Canada equity position in Ph
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Some common words found in the essay are:
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Approximate Word count = 2264
Approximate Pages = 9 (250 words per page)
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