Planning, Analytics and Risk Assessment

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Added on 2020-05-28

Planning, Analytics and Risk Assessment

Added on 2020-05-28

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Running Head: Student Name & NumberName:Student Number:Subject Code:Assessment Number:

Planning, Analytics and Risk Assessment_1

Student Name: & Number:2Table of ContentsQuestion 1 Planning, analytics and risk assessment............................................................3Part (a)............................................................................................................................3Part (b)............................................................................................................................4Part (c)............................................................................................................................5Part (d)............................................................................................................................6Question 2 Internal Control and Tests of Control................................................................7Part (a)............................................................................................................................7Part (b)............................................................................................................................9Part (c)..........................................................................................................................10Part (d)..........................................................................................................................11Part (e)..........................................................................................................................12References:.......................................................................................................................13

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Student Name: & Number:3Question 1 Planning, analytics and risk assessmentPart (a)As we see the company’s profit margin is falling from last two years and company is planning to improve it by taking some steps such as they are planning to keep their cost low so that they can cover their overhead costs by increasing the level of sales. They also planned to improve their working capital by reducing the levels ofinventory and accounts receivable. They also expect to lower down the debt level to balance the cash flow (Dalkin, J. R. 2010). By this information we can predict that company will show a hike in its profit margin as compared to previous years although they will not reach the benchmark of the industry but they will try harder to improve the net profit figures. Company’s current ratio will decrease slightly in future as they are reducing the level of their inventory and accounts receivable. This will also impact the quick ratio (Gray & Manson, 2007). The times interest earned ratio will also fall as the debts will be repaid by the company in near future. Net sales of the company will increase in the coming years as company wants to cover its overhead costs and improve the profit figures. In short company’s position will improve in near future.

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Student Name: & Number:4Part (b)The three account balances that could be at risk of material misstatement and needs peer review at the time of audit are:i)Cost (Overhead Cost)ii)Inventoryiii)Debts/ LoanThe company is trying to keep its costs in control so the auditor will critically review its cost accounts as the cost figures will decrease as compared to previous years that will surely draw the attention of the auditor. The company is planning tokeep its costs down so that sales will recover the cost and profit figures will increase. Hence, there is chance of risk of material misstatement in company’s costaccounts and the cost can be overstated by the company to get rid of the tax liability (Bonner, 1990).Company is planning to lower down the level of inventory and realise the cash to repay its liabilities so the auditor will physically verify the inventory count as thereis chance to manipulate the inventory figures. The method for valuation of inventory directly affects the cost of goods sold that’s why auditor needs to evaluate the inventory figures as their valuation is done as per the guidelines. There is possibility of overstatement of the inventory balance at the year end.Company is planning to repay its debt and decrease the level of debt to improve itsworking capital management. There is need to review the level of debt and the flow of cash the source of repayment of debt. The debts can be understated by the company to show a better financial position without its actual repayment. This shows the credibility and liquidity of the company.

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