Question

Analyze the income statement for any potential risk factors and compliance issues with Generally Accepted Accounting Principles (GAAP) or International Financial Recording Standards (IFRS). B. Analyze the risk factors and compliance issues with GAAP or IFRS on the balance sheet. C. Using the internal control, analyze the cash and revenue for potential risk factors.

1. What risks need to be documented?

2. How does this information compare to the company or industry averages, or the company’s past performance?

D. Explain the audit universe and how you identified it.

E. Based on your analysis of risk, devise a sampling program for the audit universe.

F. Choose the most preferable audit testing procedures that could be used in the field, based on the audit universe items sampled in this situation.

.

ncome Statement

All numbers in thousands

Revenue	1/31/2018	1/31/2017	1/31/2016	1/31/2015
Total Revenue	500,343,000	485,873,000	482,130,000	485,651,000
Cost of Revenue	373,396,000	361,256,000	360,984,000	365,086,000
Gross Profit	126,947,000	124,617,000	121,146,000	120,565,000
Operating Expenses
Research Development	-	-	-	-
Selling General and Administrative	104,698,000	101,853,000	97,041,000	93,418,000
Non Recurring	-	-	-	-
Others	-	-	-	-
Total Operating Expenses	478,094,000	463,109,000	458,025,000	458,504,000
Operating Income or Loss	22,249,000	22,764,000	24,105,000	27,147,000
Income from Continuing Operations
Total Other Income/Expenses Net	-7,126,000	-2,267,000	-2,467,000	-2,348,000
Earnings Before Interest and Taxes	22,249,000	22,764,000	24,105,000	27,147,000
Interest Expense	-2,330,000	-2,367,000	-2,548,000	-2,461,000
Income Before Tax	15,123,000	20,497,000	21,638,000	24,799,000
Income Tax Expense	4,600,000	6,204,000	6,558,000	7,985,000
Minority Interest	2,953,000	2,737,000	3,065,000	4,543,000
Net Income From Continuing Ops	10,523,000	14,293,000	15,080,000	16,814,000
Non-recurring Events
Discontinued Operations	-	-	-	285,000
Extraordinary Items	-	-	-	-
Effect Of Accounting Changes	-	-	-	-
Other Items	-	-	-	-
Net Income
Net Income	9,862,000	13,643,000	14,694,000	16,363,000
Preferred Stock And Other Adjustments	-	-	-	-
Net Income Applicable To Common Shares	9,862,000	13,643,000	14,694,000	16,363,000

Answer 1

ans 1. Risk of material misstatements- The finanacial statement which is not prepared using the acceptable accounting policies may have potential mistatement which will affect the decsion making of the public.

ans 2. Position in the financial market has been negative over the past five years.However , as the assets have been shrinking so to have the expenses. This appears to show that from the past couple of years it has been downsizing.

ans D. The audit universe is the sample of auditable units within the company.The audit universe encompasses policies, procedures and practices.Due to high risk and high materiality levels, the sample size must be increased.This will better help the audit team to detect and assess risk.

ans E. The sampling program used will consist of compliance test both directly on the control feature itself or directly on the outcome of the control. Being that assets and revenues have been declining in recent years these test prove to be more crucial. Testing that all financial statements meet the complince criteria will help to show that controls in place are wroking and fraud is not an issue internally.

ans F. As an auditor, i will observe the customer traffic in stores and view the warehouses to see exactly where decline in sales and asset is coming from. I will also observe competitors to see what process are in place and wehther or not they are more efficient.