Analytical Procedures. At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the
Question:
Analytical Procedures. At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the Netherlands, Lynna Heijn, Registeraccountant, was given a copy of Porster’s financial statements as prepared by the company’s accountant. On reviewing these statements, Heijn noted the following abnormal conditions.
1 The accounts receivable outstanding at the year-end represent an unusually high number of average days’ credit sales.
2 The inventories on hand at the year-end represent an unusually high proportion of the current assets.
3 The working capital ratio of the company is almost twice that of the previous year.
4 The percentage of gross profit on net sales is considerably in excess of that of previous years.
5 The rate of turnover of inventory is unusually low in comparison with previous years.
Required Taking all the above conditions together, what irregularities might Heijn suspect regarding sales and inventories?
Step by Step Answer:
Principles Of Auditing: An International Perspective
ISBN: 9780077095321
1st Edition
Authors: Rick Stephan Hayes, Philip Wallage, Arnold Schilder, Roger Dassen