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ACC 491 Analytical Procedures and Control Risk Assessment in Auditing Week 4 Individual Assignments

An individual assignment in Contemporary Auditing focusing on analytical procedures and control risk assessments.

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    Analytical Procedures and Control Risk Assessment in Auditing ACC 491 Week 4 Individual Assignments From the Text 8 - 16 (Analytical procedures) In audit planning the audit of Circuits Technology, Inc. (CTI). CTI resells, installs, and provides computer networking products (client software, gateway hardware and software, and twinax hardware) to other businesses. Figure 8 - 14 provides some summary information from CTI’s financial statements. Required a. Calculate purchases, gross margin, inventory turn days, accounts receivable turn days, and accounts payable turn days for the years ended 20x2, 20x3, 20x4, 20x5. b. Describe the trends identified by performing analytical procedures in the gross operating cycle, the net operating cycle, and gross margin. c. If tolerable misstatement is $45,000 for inventory, develop an expectation range for inventory turn days. d. With respect to inventory, what might these trends indicate about the potential misstatement in inventory? a. 20x2 20x3 20x4 20x5 Purchases 2691 - 1025+1327= 2993 2399 - 1327+1099= 2171 2095 - 1099+1003= 2161 1859 - 1003+1027= 1871 Gross Margin 52.27 % 48.11 % 47.91 % 52.39 % Inventory Turn Days (1025+1327)/2/ 2691/365= 1176/7.37= 159.57 (1327+1099)/2= 1231/6.57 =187.37 (1099+1003)/2= 1051/5.74= 183.10 (1003+1027)/2= 1015/5.09= 199.41 AR turn days 70.29 96.92 94.55 83.33 AP Turn Days 33.23 44.62 19.89 27.73 b. Trends for the year 20x5 include an increase in inventory turn days, an increase in gross margin to the highest result for the four year time period, and an improved collection period . c. The auditor will have to turn tolerable misstatement into inventory turn days using the formula: π‘‡π‘œπ‘™π‘’π‘Ÿπ‘Žπ‘π‘™π‘’ π‘šπ‘–π‘ π‘ π‘‘π‘Žπ‘‘π‘’π‘šπ‘’π‘›π‘‘ πΆπ‘œπ‘ π‘‘ π‘œπ‘“ π‘”π‘œπ‘œπ‘‘π‘  π‘ π‘œπ‘™π‘‘ ⁄ βˆ— 365 = 45 1859 ⁄ βˆ— 365 = 7 . 84 π‘‘π‘Žπ‘¦π‘ 

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