3102AFE AuditingAuditing assignment question

1.Figures should be rounded to 3 decimal places.

2.The formulae used to compute the ratios should be provided in an appendix.

3.For A: 2 four (4) marks are allocated to ratios calculations and 5 marks on assessment of going concern problem.

4.For B, your answer should focus only on inherent risks and you should justify why and how they are inherent risks and how and why they could affect the financial statements. (1 mark is allocated to identify the inherent risks and 4 marks to the explanation.

ASSIGNMENT Your firm has been approached by a listed company, ROBYN_PRAN Limited (RBL), and asked if you will accept appointment as auditors for the year ending 31 December 2016 (it is now late November 2016). RBL's Finance Director provided you with the following statement of financial position and income statement information which included actual figures for years ending 31 December 2013 to 2015, with estimated figures for 2016. RBL produces gadgets. This was once a fairly profitable industry but both the size and profitability of the industry in Australia have declined significantly in recent years due to advanced technology and replacement products (which RBL is unable to produce with its existing plant and equipment). Over recent years a number of its competitors and customers have closed down and existing tariffs, quotas and import duties on imported gadgets have been scheduled to be abolished at the beginning of 2016. RBL's factory closed in late November, pending the resolution of an industrial dispute (factory workers demanding a 15% wage rise and reduced hours). It is unlikely that work will resume prior to the Christmas shutdown and consequently the estimated figures for 2016 are not, in the opinion of the Finance Director, expected to change. ROBYN_PRAN LIMITED INCOME STATEMENT 2013 $'000 2014 $'000 2015 $'000 2016 $'000 112,500 90,000 2,000 750 2,400 115,875 98,494 2,000 750 2,000 108,923 98,031 2,000 750 1,800 92,584 86,103 2,000 750 1,500 1,850 1,850 1,850 1,850 15,500 10,781 4,492 381 Tax expense 6,045 4,204 1,752 149 NPAT 9,455 6,577 2,740 232 Revenue COGS Depreciation Amortisation Interest - Expense (net) Other expenses NPBT ROBYN_PRAN LIMITED BALANCE SHEET AS AT 2013 $'000 2014 $'000 2015 $'000 2016 $'000 Current assets Cash Receivables Inventories Other 630 21,171 19,784 517 500 24,347 22,752 517 450 27,999 26,164 517 150 33,598 31,397 517 Total Current Assets 42,102 48,116 55,130 65,662 Non-Current assets Investments Property, plant & equipment Intangibles Other 87 25,921 15,349 1,115 87 23,977 14,582 1,115 87 22,179 13,852 1,115 87 20,515 13,160 1,115 Total Non Current Assets 42,472 39,761 37,233 34,877 Total assets 84,574 87,877 92,363 100,539 Current liabilities Creditors Borrowings Provisions 9,267 5,000 11,772 10,657 0 12,361 12,256 2,500 12,978 14,707 4,000 13,627 26,039 23,018 27,734 32,334 1,338 5,000 1,531 1,137 5,000 1,479 94 3,000 1,552 1,360 5,000 1,630 7,869 7,616 4,646 7,990 33,908 30,634 32,380 40,324 Non-current liabilities Creditors Borrowings Provisions Total liabilities Net assets 50,666 57,243 59,983 60,215 Shareholders, equity Share capital Reserves Retained profits 26,202 11,187 13,277 26,202 11,187 19,854 26,202 11,187 22,594 26,202 11,187 22,826 Total shareholders, equity 50,666 57,243 59,983 60,215 Required (A) The responsible partner for accepting new clients has requested you to prepare a preliminary analytical review on the information provided by RBL's Finance Director. The partner suggests that as a minimum you should provide him with the following information bearing in mind that any change above 10% is material. (A:1) Horizontal analysis for 2016 and 2015. (5 marks) (A:2) Calculate 2 liquidity ratios, 2 activity ratios, 4 profitability ratios and 2 solvency ratios over the period 2013 to 2016. Use the ratios to assess if the company has a going concern problem. (9 marks + 1 mark for presentation) (B) List four areas of high inherent risk based on your findings in (a) above and explain how they could affect the financial statements of 2016