Describe the purpose of analytical procedures performed

Reference no: EM13979058

Reference Case Study 5-53 in the textbook.

Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including:

1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend.

2. Based on her knowledge of industry trends, she believes that the gross pro?t for 20X4 should be about 2 percent less than the percentage for 20X3.

3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3.

4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent.

5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $2,300,000. This line of credit is the company's only interest-bearing debt.

6. Based on her discussions with management and her knowledge of the industry, she believes that the amount of other expenses should be consistent with the trends from prior years.

Comparative income statement information for Uden Supply Company is presented in the table in Case Study 5-53 in the textbook.

Required:

a. Describe the purpose of analytical procedures performed in the planning stage of the audit.

b. Develop the expected amounts for 20X4 for each of the income statement items.

c. 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.

d. Indicate whether you believe that the difference calculated in part (c) is material. Explain your answer.

Your paper should be 3-4 pages in length.

Follow APA format

Make use of at least 3 reliable references

Reference no: EM13979058

Questions Cloud

What amendment protects people from excessive bail : What amendment protects people from excessive bail? Is bail designed to punish or assure the defendant will appear for trial? Should there be a limit on how long a person spend locked up waiting for trial on misdemeanor cases

Determine the angle of the refracted ray in the glass : A laser beam travels from air (n=1.002) into glass (n=1.522)and then into gelatin. The incident ray makes a 58 angle with the normal as it enters the glass and a 36.4 angle with the normal in the gelatin. Determine the angle of the refracted ray in..

Calculate the wavelength of the light : A laser shines on a pair of vertical slits. Given the measurements shown in the figure, calculate the wavelength of the light. (The illustration is not to scale. Note that the ruler measures in centimeters.)

Causes and effects of unemployment on an individual : The director of your state unemployment agency has asked you (a public relations specialist) to write about the causes and effects of unemployment on an individual/family.

Describe the purpose of analytical procedures performed : Based on her discussions with management and her knowledge of the industry, she believes that the amount of other expenses should be consistent with the trends from prior years.

What was the approximate amount stolen during the past year : What was the approximate amount stolen during the past year and what would be your recommendations to the owner?

How criminal justice system affects the population : Incorporating the areas listed below; write a 2-3 page paper on how the impact at each level of our criminal justice system affects the population they serve, reform within our criminal justice, and the impact on our society/citizens

How much work is done by the force as the block moves : The scale of the figure's vertical axis is set by Fs = 12.0 N. How much work is done by the force as the block moves from the origin to x = 8.0 m?

Differences between managed care and traditional cost models : What are the differences between managed care and traditional cost/reimbursement models? Find at least 2 published peer-reviewed journal articles from within the last 3 years related to the evaluation of the managed care model versus a fee-for-ser..

User Account

All Pages