Reference no: EM132458297
ACC 410 Auditing Assignment - Ashford University, USA
Question - Review the income statement for Uden Supply Company and answer the following:
1. Describe the purpose of analytical procedures performed in the planning stage of the audit.
2. Uden Supply has projected its 2004 gross profit at 31% of sales despite expectation for some shrinkage in margins. On the basis of Uden's operating performance in years 2001 - 2003 project your best guess for 2004. Project 2004 based on the incremental changes for each line item over the last three years.
3. Uden's unaudited financial statements for the current year show a 31 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4.
4. Indicate whether you believe that the difference calculated in part (c) is material. Explain your answer.
5. Comparative income statement information for Uden Supply Company is presented in the accompanying table.
UDEN SUPPLY COMPANY Comparative Income Statement
Years Ended December 20X1, 20X2, and 20X3 (Thousands)
20X1 Audited 20X2 Audited 20X3 Audited 20X4 Expected
Sales 8,700 9,400 10,100
Cost of goods sold 6,000 6,500 7,000
Gross profit 2,700 2,900 3,100
Sales Commissions 610 660 710
Advertising 175 190 202
Salaries 1,061 1,082 1,103
Payroll taxes 184 192 199
Employee benefits 167 174 181
Rent 60 61 62
Depreciation 60 63 66
Supplies 26 28 30
Utilities 21 22 23
Legal and accounting 34 37 40
Miscellaneous 12 13 14
Interest expense 210 228 240
Net income before taxes 80 150 230
Incomes taxes 18 33 50
Net income 62 117 180
Required - Calculating the payroll taxes, interest expense, & income taxes as they have not moved incrementally even over the years.