Aslam Ltd

Your firm has been engaged by the management of Aslam Ltd (Aslam) to undertake a review of and provide and assurance report on the interim financial information of Aslam for the six months ended 30 November 2019. The terms of engagement are restricted to making enquiries of management and applying analytical procedures to the financial information. The business was started 12 years ago and has grown steadily with no outside investors. Management wishes to increase the rate of expansion and has identified a potential investor who has asked for assurance on the interim financial information.

Historically, the principal activity of Aslam has been retailing high quality and stylish children clothing. However, in July 2019, the company launched a new range of up-market accessories which includes children's chairs, prams, cots and bedding. The company holds a limited amount of inventory of the most expensive accessories, but guarantees delivery of any item ordered within six weeks of the order date. The clothing is sourced from suppliers in the Malaysia and more recently Indonesia. The accessories are sourced from suppliers in China.

Sales are made through the company's eight retail outlets, by mail order and over the internet. Seven of the retail outlets are in the Malaysia and one, which was opened in April 2019, is in Singapore, Indonesia. Revenue has grown steadily at between 4% and 6% per annum over the five years ended 31 May 2019.

To help management with its objective to increase the rate of expansion, the company entered into a contract, in October 2019 to lease a purpose-built warehouse facility and, in November 2019, it upgraded its IT infrastructure.

The following is an extract from Aslam's financial information.

Statement of profit or loss

Six months ended 30 November

2019

2018

RM'000

RM'000

Revenue

6,716

6,064

Cost of sales

(3,761)

(3,517)

Gross profit

2,955

2,547

Operating expenses

(1,947)

(1,394)

Profit from operations

1,008

1,153

2

Statement of financial position

As at 30 November

2019

2018

RM'000

RM'000

Current assets

Inventories

1,780

1,388

Current liabilities

Trade payables

701

771

Your preliminary analytical procedures have identified the following as matters of significance to discuss with management:

Six months ended 30 November

2019

2018

Increase in revenue (%)

10.8

6

Gross profit margin (%)

44

42

Operating margin (%)

15

19

Inventory days (days)

86

72

Trade payables days (days)

34

40

Requirements

1. Prepare briefing notes on the matters which you wish to discuss with the management of Aslam in respect of the information provided in the scenario. Your notes should include reference to the results of your preliminary analytical procedures.

(12 marks)

Note: You are not required to calculate any additional ratios