BAP41 Auditing & Assurance: Financial Analysis Report on ABC Learning

This report provides a comprehensive financial analysis of ABC Learning using several key analytical procedures, covering the years 2000-2007. It begins with an introduction to analytical review procedures and their purpose, followed by the application of DuPont analysis, common size analysis, trend analysis, and Beneish M-Score analysis. The DuPont analysis focuses on Return on Equity, breaking it down into profit margin, total asset turnover, and financial leverage. Common size analysis uses sales as a base to present income statement data as percentages, facilitating comparisons. Trend analysis uses historical data for forecasting and performance measurement. The Beneish M-Score is applied to assess earnings manipulation. The analysis of results reveals fluctuating return on equity, inconsistent dividend payments, and no indication of manipulated figures. The report concludes with recommendations for cost reduction, long-term debt management, and effective financial leverage, highlighting the transparency of the presented data. Students can find more solved assignments on Desklib.

AUDITING &
ASSURANCE
BAP41

TABLE OF CONTENTS
 Introduction
 Literature review
 Application of DuPont Analysis
 Application of Common Size Analysis
 Application of Trend Analysis
 Application of Beneish M-Score
 Analysis of Results
 Summary of Findings
 Recommendations
 Conclusion
 Appendices
 Referencing

INTRODUCTION
 Effective Analytical review of the
historical financials covering the years
2000-2007 for ABC Learning
 Auditing standards such as Analytical
procedure
 Financial statement of the company
analysed
 Application of DuPont Analysis, Common
size, Trend analysis and Beneish M-Score

LITERATURE REVIEW
 Analytical Review Procedures
Purpose of Analytical Procedures
 Preliminary analytical review
 Substantive analytical procedures
 Final analytical review (required by ISA
520)

APPLICATION OF DUPONT
ANALYSIS
 Based on Return on Equity Ratio
Three main component
 Profit Margin
 Total Asset Turnover
 Financial Leverage

APPLICATION OF COMMON SIZE ANALYSIS
 Base as the Sales is taken in Income
statement
 Presentation of the data as percentage
 Can be conducted on time basis or
different companies
 Effective in comparison of the results

APPLICATION OF TREND ANALYSIS
 Effective in forecasting
 Historical Data is used as the base for
analysis
 Effective in measurement of performance
 Plotting of the information for analytical
review.

APPLICATION OF BENEISH M-SCORE
ANALYSIS
 Used to check the earnings being manipulated
or not.
Eight financial ratio required for calculation
 DSRI (Days Sales in Receivables Index)
 DEPI (Depreciation Index)
 SGI (Sales Growth Index)
 LVGI (Leverage Index)
 TATA (Total Accruals to Total Assets)
 GMI (Gross Margin Index)
 AQI (Asset Quality Index)
 SGAI (Sales, General and Administrative
Expenses Index)

ANALYSIS OF RESULTS
 Fluctuating return on equity
 The profit percentage with respect to
revenue of the company
 The ordinary dividend for full year was
not constant
 The Figures are not being manipulated

SUMMARY OF FINDINGS
 Return on equity increased but later
started to decline rapidly
 There was an increase in the net profit
percentage with respect to the sales
but then decreased
 The Dividend paid varied very much
 There is no manipulation with respect
to the figures

RECOMMENDATIONS
 The company must focus on reducing the cost
of the company
 The long term debt must be effectively
managed
 Financial leverage must be considered for
capital management
 Consider the interest cost of the company

CONCLUSION
 There is increase in the revenue of the
company
 The company performance has reduced
with time
 There is transparency in the figures and
data presented
 Audit procedure are effective to
measure any problem in the
organisation

APPENDICES
2000 2001 2002 2003 2004 2005 2006 2007
0
2
4
6
8
10
12
14
16
18
20
f(x) = 0.101190476190476 x + 7.35714285714286
R² = 0.00207789593264451
Dividend
Dividend
Linear (Dividend)

REFERENCING
 My Accounting Course, 2018. DuPont
Analysis. My Accounting Course.
[Online]. Also available at
https://www.myaccountingcourse.com/fin
ancial-ratios/dupont-analysis
 ACCA, 2018. Analytical Procedure. ACCA
Global. [Online]. Also available at
http://www.accaglobal.com/in/en/student
/exam-support-resources/professional-
exams-study-resources/p7/technical-
articles/analytical-procedures.html