Reference no: EM132957330

You are the audit senior on the audit of Just Shoes Pty Limited, a large manufacturer of shoes. Just Shoes Pty Limited's main market lies with 20to 25 year olds.  This is the first year in which your firm has performed the audit. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and last year's audited financial information.

The results are given below:

                                             Industry average                  Just Shoes Pty Limited

Ratio                                                    20X7           20X6                    20X7                  20X6
1 Current ratio                              2.84            3.27                1.89                  2.24
2 Receivables turnover ratio             4.9              4.6                  6.3                    7.0
3 Inventory turnover ratio                 3.7               3.8                 5.0                   5.5

Required:

Problem 1: Explain the general meaning of each of the above ratios, discuss the conclusions that you can draw about Just Shoes's financial position and identify potential audit risks to be investigated.