Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with all...
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Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.87 0.91 1.08 Days of inventory on hand 62.73 75.15 82.40 84.02 80.52 82.26 79.89 86.86 84.13 75.04 Inventory/current assets Return on assets 16.10% Debt to equity 0.02 53.48% 45.51% 9.75% 0.07 48.42% 62.28% 5.70% 1.47 2.16% 2.36 80.81% 6.05% 0.72 58.04% 6.98% 0.44 56.44% 60.19% 8.87% 7.05% 0.31 60.92% 50.33% 5.06% 11.73% 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may need to use Internet searches to obtain more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.87 0.91 1.08 Days of inventory on hand 62.73 75.15 82.40 84.02 80.52 82.26 79.89 86.86 84.13 75.04 Inventory/current assets Return on assets 16.10% Debt to equity 0.02 53.48% 45.51% 9.75% 0.07 48.42% 62.28% 5.70% 1.47 2.16% 2.36 80.81% 6.05% 0.72 58.04% 6.98% 0.44 56.44% 60.19% 8.87% 7.05% 0.31 60.92% 50.33% 5.06% 11.73% 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may need to use Internet searches to obtain more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry.
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a Potential risks the ratios andor historical patterns may present 1 Quick Ratio The Home Improvement Stores quick ratio has been consistently lower than the industry average indicating potential liqu... View the full answer
Related Book For
Auditing and Assurance Services A Systematic Approach
ISBN: 978-0077732509
10th edition
Authors: William Messier Jr, Steven Glover, Douglas Prawitt
Posted Date:
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