Case 8.1: Laramie Wire Manufacturing: Using Analytical Procedures in Audit Planning 1. Perform analytical procedures to help you identify relatively risky areas that indicate the need for further attention during the audit, if any. 2. Focus specifically on each of the five management assertions (existence or occurrence, completeness, valuation or allocation, rights and obligations, and presentation and disclosure) for the inventory account. Link any risks you identified for this account in question 1 to the related management assertion. Briefly explain identified risks or issues for the inventory account that require further attention, if any. Background About Laramie Wire MFG.
The use of analytical procedures is one method of increasing auditor efficiency. Simple analytical procedures comparisons, ratio analysis, trend analysis, and common size financial statements are effective as attention directing tools in the planning and final review stages of the audit. Those procedures are also effective when used in conjunction with a minimum level of tests of details as a substantive test. There is a lot of information that must be discussed. Firstly, why is the set up time taking six hours from start to finish? Determining this factor, we know that Laramie is inefficient in their preparation. Laramie company should have a quality control and have customers rate the service and the product to help improve the product. The auditor’s should analyze the data and compare the past to the present. As we’ve analyzed, we see the turnover margin increase from the prior year. Not a good sign for approval margin. Since there is a good growth rate in sales, we need to understand why sales income didn’t increase while the receivables of their product did. As the industry changes, the company should continue reevaluating the cost of goods and labor and compare to recent percentages of sales. This should generally be done on an annual basis and the Board of...
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