`Link for one of the proxy statements:

http://www.sec.gov/Archives/edgar/data/896156/000104746913009945/a2217078zdef14a.htm

Risk Factors
1. A. Liquidity and Capital Resources- asset based, revolving credit facility, $50 million
now, can lead up to $100 million under certain conditions. Clearly INCENTIVE based.
10K, PAGE 29.
B. Company’s fixed charge coverage ratio may not be less than 1 to1 for any period of
four consecutive fiscal quarters. Certain payments are restricted if availiabilty of collateral
supporting facility falls below 10 millions or 20% of facility size. Contains customary covenants
which may limit the Company’s ability to incur debt; engage in mergers and consolidations;
make restricted payments; sell certain assets; make investments. Clearly this impacts the
company itself, the bank, and external users investing in Edgar Allen.
C. Inherent risk is clearly increased. If Edgar Allen does not reach their fixed charge
coverage ratio, they will not get their loan approved. Along with that, they will not be able to
increase their loans from $50 million to $100 million.

D. A fixed charge coverage ratio is a ratio that indicates a firm's ability to satisfy fixed financing
expenses, such as interest and leases. It is calculated as the following:

The accounts that would clearly be affected would be an overstatement of revenues, which
would increase their earnings and a decrease in expenses, which would increase their EBIT and
qualify them for their loan.
E. Audit strategy- make sure

10-Q ended March 31,2015

Risk Factors
1. Financing costs of $1.5 Million under the Facility, which are being amortized by the
straight-line method, which approximates the interest.
a. Client level risk
b. managment has the opportunity to change methods and exaggerate interest cost
c. possible violation of the completeness assertion.
2. Loans under the Facility bear interest, based on the Company’s rent adjusted leverage
ratio.
a. Account Level risk
b. management attitute - feels pressure for meeting the appropriate amount of
leverage (debt/equity)
c. possible violation of the valuation assertion
3. Term loan is payable based on straightline 15 year amortization period. The company
does not expect to repay the revolving credit portion within the next year.
a. Account level risk
 b. Management has the opportunity to mistake this as a shortterm liability, or there
is potential for error.
c. Possible violation of the completeness assertion
4. Litigation: client is “routinely” involved in various investigations or as a defendant in
litigation. Sometimes they are involved in investigations and proceedings regarding
environmental matters. Because this happens routinely, the auditor should expect to see
some sort of litigation liability created. “Management believes that the likelihood is
remote that any existing claims or proceedings will have a material adverse effect on our
financial position.
a. Client level risk
b. Management has the opportunity to understate liabilities based on falsely
recording litigation fees.
c. Possible violation of the completeness assertion.
5. Fair Value Measurements: Fair Value measurements is calculated based on
assumptions that market participants use in pricing the asset or liability, and not on assumptions
specific to the company.
a. Account level risk
b. management has the opportunity to change wide assumption for calculating fair
value to overstate net assets
c. possible violation of the existence assertion
6. Leases:
Have to find out if its operating or capital lease
- operating lease do not need to record liability but capital lease you need too

7. A. 88% Of trucks and trailers ith 12% capital lease agreements

B. Account level risk
C. Would overstate assets on balance sheet
D. Violation: Completeness
Opportunity
8. Goodwill estimated by Edgar Allen- page 46
Account Level Risk
Would overstate assets
Completeness
Opportunity

9. Foreign Currency, page 49

Client level 49 and 45
Opportunity to mislead or misstate due to exchange rate at time
Completeness and valuation
Could affect all accounts, ranging from revenues and expenses