Auditing: Analyzing Risks and Procedures for Ensuring Accuracy

Running head: AUDITING
Auditing
Name of the Student:
Name of the University:
Author’s Note:

1
AUDITING
Table of Contents
Case 1...............................................................................................................................................2
Case 2...............................................................................................................................................3
Requirement a..............................................................................................................................3
Requirement b..............................................................................................................................4
Case 3...............................................................................................................................................4
Requirement to Part i...................................................................................................................4
Requirement to Part ii..................................................................................................................5
Requirement of Part iii.................................................................................................................5
Requirement to Part iv.................................................................................................................5
Case 4...............................................................................................................................................6
Requirement to Part i...................................................................................................................6
Requirement to Part ii..................................................................................................................6
Requirement to Part iii.................................................................................................................6
Requirement to Part iv.................................................................................................................7
Reference.........................................................................................................................................8

2
AUDITING
Case 1
As per the case which is provided in the question, EasyFit Pty Limited is engaged in the
business of shoe manufacture and the target market of the business lies between 18 to 24 years of
age. The auditor of the business has to consider analytical procedures in order to identify any
risks which might be associated with the business. The ratios which are considered are provided
below along with risks implications for the same if any:
 Current Ratio: This represent the liquidity position of the business and is considered to
be an important estimate to judge the overall liquidity position of the business. The
current ratio represents the capacity of a business to meet its current obligations. As per
the estimates of the business, there has been a fall in the current ratio of the business from
2016 estimates and it is even lower than industry average which is shown to be 2.84 for
2017. The current ratio is ideal but the same is still lower in comparison to industry
average which suggest that the business should improve the same or it can pose a
liquidity risk for the business in future.
 Receivable Turnover Ratio: This ratio forms a part of efficiency ratios of a business
and represents the ability of the company to realize funds from debtors which the debtors
owe to the company (Jans, Alles and Vasarhelyi 2014). The receivable turnover ratio of
the business is shown to be 6.3 for 2017 and the same has slightly fallen from 7 which
was in 2016. The estimate of the business is better than industry average which is a
favorable sign. The estimate also signifies that the business has an efficient debtor’s
policy. The overall risk in this respect is quite low as per the auditor.
 Inventory Turnover Ratio: This also forms part of efficiency ratio of a business and
shows the ability of a company to clear its inventory stocks and realize the same into
liquid cash. The inventory turnover ratio of the business is also shown to be favorable in
comparison to industry average and the estimate for 2017 is shown to be 5. There has
been a fall in the inventory turnover ratio from previous year estimate which was 5.5 and
the auditor needs to investigate the same in order to avoid risk which is related to
manipulations (Titera 2013). The auditor can verify the inventory stocks by applying
verification of stocks and also physical take of stock.