Audit & Assurance

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Part 1
The purpose of Part 1 is to perform preliminary analytical procedures. You have been asked to focus your attention on two purposes of analytical procedures: Assess going concern and
Indicate where there is an increased likelihood of misstatements

Required for Part 1
Calculate at least ten ratios that are useful to assess going concern using Heritage’s financial statements, which are located on Blackboard, appendix 1 & 2. Document the ratios in a format similar to the following: Ratios200920082007

Current assets44,497
Current ratio:Current liab. 25,926
1.72
Debt to equity
Net income before tax/sales
Gross margin %
Inventory turnover
Interest to debt
Gearing
(10 Marks)
Explain the term “materiality” and discuss this in relation to Heritage (5 Marks)

Based on your calculations, assess the likelihood (high, Medium or low), with explanations, that Heritage is lightly to fail financially in the next 12 months for each ratio and collectively.(10 Marks)

Using the income statement located on Blackboard, appendix 2, prepare a common-sized income statement for all three years. Use the following format: (5 Marks)

Use the information to identify at least five accounts for which you believe there is a concern about material misstatements. Use a format similar to the following:

Account BalanceEstimate of $ Amount of Potential Misstatement (with explanation)

(5 Marks)

Use the three divisional income statements located on Blackboard, in appendix 3 to prepare a common-size income statement for the three divisions for all three years. Use the information to identify at least three accounts in each Division, for which you believe there is a concern about material misstatements. Use a format similar to d.(10 Marks)


Part 2
The purpose of Part 2 is to identify factors influencing risks and the relationship of risks to audit evidence. During the planning phase of the...
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