06 Feb Research 2 prominent public compani

ACC522 Advanced Audit Issues

Unit 3 Assignment

Part 1

The Lakeside Company

Analytical Review Procedures

December 31, 2012

Prepared by:

Date:

(a) Compute the financial ratios listed in Exhibit 3-2 for Lakeside for the years ended December 31, 2010 and December 31, 2011. Comment on any large fluctuations, unusual fluctuations, or lack of expected fluctuations. Also, give an overall conclusion as to the significance of the change in Lakeside’s liquidity, solvency, and profitability positions from 2010 to 2011. Use the following format. [Use Case3.xls for a spreadsheet to compute the ratios].

Ratio

2010

2011

Significance of Change

Current

1.35

1.35

No significant fluctuation, indicating a stable liquidity position (based on this measure of liquidity)

Average Days Inventory on Hand

Average Days to Collect Receivables

Debt-to-Total Assets Ratio

Times Interest Earned

Profit Margin

Return on Assets

Return on Equity

Overall Conclusion:

(b) Compare the year 2011 financial ratios computed for Lakeside above to the industry average ratios included in Exhibit 3-3. Comment on any large fluctuations, unusual fluctuations, or lack of expected fluctuations. Also, give an overall conclusion as to the significance of the difference between Lakeside’s liquidity, solvency, and profitability positions in 2011 and the industry average positions. Use the following format.

Ratio

Industry Ave.

Lakeside 2011

Significance of Change

Current

2.16

1.35

Lakeside is below the industry average. This may indicate short-term solvency problems

Average Days Inventory on Hand

Average Days to Collect Receivables

Debt-to-Total Assets Ratio

Times Interest Earned

Profit Margin

Return on Assets

Return on Equity

Overall Conclusion:

(c) Scan each of the financial statements and the trial balances included in Exhibits 3-4 through 3-7. Comment on any unusual accounts, account balances, or large, unusual, or lack of expected fluctuations from the previous year. You should find at least 10 items. [Note: you may have more than one “finding” for each procedure]. Use the following format:

Procedure

Findings

Significance

Scan the trial balance.

1. A debit balance appears in the “Allowance for Doubtful Accounts” account.

2.

1. Bad accounts may be increasing or a debit entry may have been misposted.

2.

Scan the income statement.

Scan the balance sheet.

Scan the statement of cash flows.

Part 2

Using library resources, audit text book and other authoritative sources, apply your research by answering the following: 1) The assessment of risk is crucial component of the audit process. Identify the types of risks that are found in an audit. Describe each of these risks. Discuss how these risks are assessed by the auditor and describe the interrelationships among these risks.

2) Research 2 prominent public companies in Lakeside’s industry (consumer electronics) Examples: Radio Shack and Best Buy. Feel free to use these companies or come up with your own from your research. Obtain the most recent financial statements for the companies you chose and compute the financial ratios for these companies like you did in Part 1 3a. Perform a comparative analysis of these financial ratios. How does Lakeside compare with these companies in terms of liquidity, profitability, and solvency?