Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 5, Problem 51P
a.
To determine
Identify the accounts that may appear to represent significant variations from what one might expect.
b.
To determine
Identify the ratios that may appear to represent significant variations from what one might expect.
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1. Using the information above, complete the calculation of accounting ratios andpercentages and comment briefly on the performance of the company for the twoyears. 2. By reference to requirement 1, identify the areas that are subject to increased auditrisk and describe the further audit work you would perform in response to those risks.
Analytical procedures are evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data. Understanding and evaluating such relationships are essential to the audit process. The following financial statements were prepared by ABC Manufacturing Co. for the year ended December 31, 2020. Also presented are various financial statement ratios for Holiday as calculated from the prior year's financial statements. Sales represent net credit sales. The total assets and the receivables and inventory balances at December 31, 2020, were the same as at December 31, 2019.
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See image: audit 2
Required:Items 1 through 9 below represent financial ratios that the auditor calculated during the prior year's audit. For each ratio, calculate the current year's ratio from the financial statements presented above.Calculations 12/31/2020 12/31/20191. Current ratio 2.52. Quick ratio 1.33. Accounts receivable turnover 5.54. Inventory…
You are the auditor for Sigma Pty Ltd.As part of your preliminary work, you have obtained the following information:
Current Year (unaudited)
Previous Year(audited)
Industry average
i) Current ratio (Working capital ratio)
1.91
2.35
2.91
ii) Receivables turnover
57 days
51 days
73 days
iii) Inventory turnover
72 days
65 days
96 days
iv) Gross profit margin
20%
18%
20%
v) Net profit margin
4%
4%
6%
In addition you have found that:
The financial controller resigned during the year and the company has yet to hire another financial controller. The accounts of the current year were prepared by the assistant accountant.
For situation mentioned above:
i). Which component of the Audit Risk Model (ARM) would be affected, and how?
ii). Discuss how your audit plan would be affected.
Note:Prepare your answers in a tabular format as follows:
Component of ARM
Effect on Audit Plan
Chapter 5 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Distinguish among routine, nonroutine, and...Ch. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - As part of the verification of accounts receivable...Ch. 5 - Prob. 9RQCh. 5 - When in the course of an audit might the auditors...
Ch. 5 - Prob. 11RQCh. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14RQCh. 5 - Prob. 15RQCh. 5 - Prob. 16RQCh. 5 - Prob. 17RQCh. 5 - What disclosures should be made in the financial...Ch. 5 - Prob. 19RQCh. 5 - Prob. 20RQCh. 5 - Prob. 21RQCh. 5 - Prob. 22RQCh. 5 - Prob. 23RQCh. 5 - Prob. 24RQCh. 5 - Prob. 25RQCh. 5 - Prob. 26RQCh. 5 - Prob. 27RQCh. 5 - Prob. 28RQCh. 5 - Prob. 29RQCh. 5 - I have finished my testing of footings of the cash...Ch. 5 - Prob. 31RQCh. 5 - Prob. 32RQCh. 5 - Financial statements contain a number of...Ch. 5 - Prob. 34QRACh. 5 - In an audit of financial statements, the auditors...Ch. 5 - Prob. 36QRACh. 5 - Prob. 37QRACh. 5 - Prob. 38QRACh. 5 - Prob. 39QRACh. 5 - Prob. 40QRACh. 5 - Prob. 41QRACh. 5 - Prob. 42QRACh. 5 - Prob. 43AOQCh. 5 - Prob. 43BOQCh. 5 - Prob. 43COQCh. 5 - Prob. 43DOQCh. 5 - Prob. 43EOQCh. 5 - Prob. 43FOQCh. 5 - Prob. 43GOQCh. 5 - Prob. 43HOQCh. 5 - Prob. 43IOQCh. 5 - Prob. 43JOQCh. 5 - Prob. 43KOQCh. 5 - A difference of opinion concerning accounting and...Ch. 5 - Prob. 44OQCh. 5 - Prob. 45OQCh. 5 - Prob. 46AOQCh. 5 - Prob. 46BOQCh. 5 - Prob. 46COQCh. 5 - The cost of analytical procedures in terms of time...Ch. 5 - Prob. 46EOQCh. 5 - Prob. 47OQCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 56RDC
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