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Chapter Problem 5-39 Ratio/Trend Analysis Compared to Industry Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2016. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.07 091 1.08 Days of laventory on hand 62.73 75.15 12.40 84.02 80.52 82.26 79.89 86.06 84.13 75.04 Inventory current assets 53.48% 45.51% 48.42% 62.28% 80.91% 58.04% 56.44% 60.19% 60.92% 50.33% Return on assets 16.10% 9.75% 5.70% 2.16% 6.05% 6.98% 8.87% 7.05% 5.06% 11.73% Debt to equity 0.02 0.07 1.47 236 0.72 0.44 0.31 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may want to reference the advanced module in this chapter for more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present.. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. Page 1

Chapter Problem 5-39 Ratio/Trend Analysis Compared to Industry Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2016. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.07 091 1.08 Days of laventory on hand 62.73 75.15 12.40 84.02 80.52 82.26 79.89 86.06 84.13 75.04 Inventory current assets 53.48% 45.51% 48.42% 62.28% 80.91% 58.04% 56.44% 60.19% 60.92% 50.33% Return on assets 16.10% 9.75% 5.70% 2.16% 6.05% 6.98% 8.87% 7.05% 5.06% 11.73% Debt to equity 0.02 0.07 1.47 236 0.72 0.44 0.31 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may want to reference the advanced module in this chapter for more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present.. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. Page 1

Auditing: A Risk Based-Approach (MindTap Course List)
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle
Section: Chapter Questions
Problem 23RQSC
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Chapter Problem 5-39 Ratio/Trend Analysis Compared to Industry Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2016. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.07 091 1.08 Days of laventory on hand 62.73 75.15 12.40 84.02 80.52 82.26 79.89 86.06 84.13 75.04 Inventory current assets 53.48% 45.51% 48.42% 62.28% 80.91% 58.04% 56.44% 60.19% 60.92% 50.33% Return on assets 16.10% 9.75% 5.70% 2.16% 6.05% 6.98% 8.87% 7.05% 5.06% 11.73% Debt to equity 0.02 0.07 1.47 236 0.72 0.44 0.31 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may want to reference the advanced module in this chapter for more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present.. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. Page 1
Transcribed Image Text:Chapter Problem 5-39 Ratio/Trend Analysis Compared to Industry Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2016. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.07 091 1.08 Days of laventory on hand 62.73 75.15 12.40 84.02 80.52 82.26 79.89 86.06 84.13 75.04 Inventory current assets 53.48% 45.51% 48.42% 62.28% 80.91% 58.04% 56.44% 60.19% 60.92% 50.33% Return on assets 16.10% 9.75% 5.70% 2.16% 6.05% 6.98% 8.87% 7.05% 5.06% 11.73% Debt to equity 0.02 0.07 1.47 236 0.72 0.44 0.31 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may want to reference the advanced module in this chapter for more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present.. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. Page 1
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