8-16, 10-32, 11-21

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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.


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 a.Purchases 2993 2171 1827 1883

b.Gross Margin 52.3% 48.1% 52.2% 52.4%
c.Inventory Turn Days 160 185 199 199
d.Account Receivable turnover days 70 97 95 83
e.Accounts Payable Turnover 33 51 43 36

b.Describe the trends identified by performing analytical procedures in the gross operating cycle, the net operating cycle, and gross margin.

The trends show an increase in the inventory turn days, an increase in the gross margin for the best result for the four year period and an improved collection time.

c.If tolerable misstatement is $45,000 for inventory, develop an expectation range for inventory turn days. 45/ 1859 X 365 = 7.84 days

d.With respect to inventory, what might these trends indicate about the potential misstatement in inventory These trends could indicate a potential overstatement of inventory from a possible calculation error or fraudulent reporting

10-32 (Components of internal control) Internal controls can be categorized using the following framework.

1. Control environment
2. Risk assessment
3. Information and communication
4. Control activities
4.1. Authorization
4.2. Segregation of duties
4.3. Information processing controls
4.3.1. Computer general controls
4.3.2. Computer application controls
4.3.3. Controls over the financial reporting process
4.4. Physical controls
4.5. Performance reviews
4.6. Controls over management discretion in financial reporting 5. Monitoring
6. Antifraud programs and...
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