Business factor Explanation of impact Account balance
Major expansion Inventory potentially overstated as possibly recorded at more than net realizable value Overstated inventory account Poor ski environment Economic downturns can create circumstances that require write-offs of receivables or inventory, thus accounts receivable could be potentially overstated. Overstated receivable account Poor internal control Potential for misappropriation of assets. Overstated current asset. Government policies Inventory potentially overstated as possibly recorded at more than net realizable value. Overstated inventory account Industry conditions Certain industries may have transactions that increase the risks of material misstatements. Overstated inventory account. Q1
the accounts that might need auditor assess include
inventory turnover ratio
receivables turnover ratio
return on total asset
Audited 2013 current ratio is 2.89 and unaudited current ratio at 2014 is 3.44, and the industry average is 2.97, therefore, the current ratio at 2014 is much higher than industry average and ratio at 2013. The auditor might want to assess to this account since there is potential risk of overstated of current asset or understated of current liability. Inventory turnover ratio is 3.2, which is close to industry average 3.7, however, in 2013 BB company’s audited inventory turnover ratio is 4.5. therefore, the inventory turnover ratio at 2014 is 1.3 lower than 2013. Thus, there is potential risk of overstated inventory. Receivable turnover ratio is 4.3, which is close to industry average 4.6. However, the receivable turnover ration in 2014 is 1.2 lower than 2013, therefore, there is potential risk of understated receivable accounts. Return on total asset during 2014 is 11% which is close to 2013 9%. However, during 2014 the industry average is 5%. And BB company’s rate is 6% higher than industry average, thus, there is potential risk of overstated total...
Please join StudyMode to read the full document