Explain the impact on the risk of material misstatement

Reference no: EM132375850

CASE 1-8 BEANBAG PTY LIMITED

You are the audit senior on the audit of BeanBag Pty Limited (BB), a large manufacturer of comfortable Bean Bag Chairs. BB has a wide range of Bean Bag styles, including single and double Bean Bags, and an extensive choice of fabric, including denim and fur. Their main market lies with 18 to 24 year olds

This year, 2014, is the second year in which your firm has performed the audit. As pan of the planning work, you have performed analytical procedures in order to compare the unaudited results for the current year with last year's audited financial information, as well as with the
relevant industry averages. The results are given below:


		INDUSTRY AVERAGE		BB
				Audited	Unaudited
				Audited	Unaudited
				2014	2013	2014
	Ratio			2014	2013	2014	2013
	Ratio	2.97	2.89	3.44			2013
I	Current ratio	2.97	2.89	3.44	284
2	Receivables turnover ratio	4.9	4.6	5.5	4.3
3	Inventory turnover ratio	3.8	3.7	4.5	3.2
4	Return on total assets	7%	5%	9%	11%
5	Net profit ratio	0.06	0.06	0.07	0.09
6	Gross margin	0.21	0.20	0.22	0.26
7	Times interest earned	3.4	3.3	3.5	4.2

In addition, you note the ronowing:

(i) Informal discussions with the production manager revealed that the initial interest in the revival of the bean bag chair has declined during the year

(ii) Management has bulk-purchased a supply of leopard print fabric to attempt to re-ignite demand for their product.

(iii) A review of lifestyle magazines has indicated renewed interest in cane furniture.

(iv) During the last few months of the financial year, a growing number of Bean Bags were returned due to faulty zipper components,

(v) Additional loans were negotiated during the year.

REQUIRED:

1. Using the analytical procedures results and additional information noted above, identify four (4) key accounts that the auditor might assess to be at risk of material misstatement.

2. For each account noted in 1. above, explain the impact on the risk of material misstatement with reference to both the ratios and the additional information provided.

Reference no: EM132375850

Questions Cloud

Requests for proposal in your professional career of choice : Research on the internet, Requests for Proposal (RFP). Preferably, these would be RFPs in your professional career of choice.

Why each event you selected propelled the american civil war : Examine how and why each event you selected propelled the American Civil War in 1861. Based on the historical facts given in this module, assess if the American

Does narrator in boyle greasy lake reach this understanding : New awareness of the reality of human existence". Does the narrator in Boyle's "Greasy Lake" reach this understanding?

Information system operation management : What are the major journals or other types of publications in the field? Who publishes and/or edits them? How long have they existed?

Explain the impact on the risk of material misstatement : Explain the impact on the risk of material misstatement with reference to both the ratios and the additional information provided.

Summarize the overall health behaviors of the family : Summarize the overall health behaviors of the family. Describe the current health of the family. Based on your findings, describe at least two of the functional

Why is it more important to have a well-designed : Why is it more important to have a well-designed team than a team with a good leader

Explain how the systems influence goal attainment : Consider what was happening in nursing in the late 1970's and early 1980's with the change from diploma programs to an associate degree program.

What step in the management by objectives process : What step in the management by objectives process involves the manager and the worker checking to see whether the objectives are being? reached?

User Account

All Pages