B C D E G . 1 ABC, Inc. 2 Analytical Review Procedures 3 Year Ended December 31, 2017 It is January 2018 and you are staff accountant assigned to the 2017 nudit of ABC Inc. ABC is a closely held corporation managed by the founder and principal shareholder. Agatha Bernice Christy. Your firm has audited ABC for the last five years. The audited financial statements for the years ended December 31, 2016 and 2015 are presented below. with the 4 client's unaudited financial statements for 2017 5 Additional Information: ABC manufactures and sells drones for industrial use and cattle prods for ranching, 7 - All sales are on Credit Credit terms are net 30 days. 8 - ABC offers a one-year warranty covering manufacturing defects. ABC uses a periodic inventory system and determines its year-end inventory by taking a playsical count on December 31. You and your supervisor observed the count on December 31, 2017 and performed numerous test counts, but you have not performed further audit tests regarding inventory 10 The interest rate on all debt is 8 percent. Annual interest and principal payments are due cach December 1 11 - Average Common Shares Outstanding is 10,000 for each year. 12 INCOME STATEMENTS (S000's) 6 9 CULU - Average Common Shures Outstanding is 10,000 for each year. 2 INCOME STATEMENTS (5000's) 3 Years ended December 31 2017 2016 2015 Sales revenue s 7.750 $ 7.713 5 7.493 15 Cost of goods sold 5.505 5.381 5.225 16 Gross profit 2.245 2.332 2.268 17 Selling and general expenses 1.631 1.622 1.377 18 Depreciation experise 46 53 19 19 Warranty expense 75 63 20 90 85 90 21 Legal fees 53 14 12 22 Interest experts 110 127 135 23 Income before taxes 240 364 350 24 Income tax espere 71 109 104 25 Net income $ 169 $ 2355 246 26 Dividends paid $ 125 $ 1255 100 28 The following schedule shows the sales revenue and components of costs of goods sold for each of ABC'S 29 products Bad debt expense E F G H 2017 2016 2015 $ 4.880$ 4.932 $ 4.791 1.895 1.103 689 1,835 1.074 661 5 B D 1 SCHEDULES OF GROSS PROFIT (5000's) 2 Years ended December 31 3 Drones 4 Sales 5 Cost of goods sold 6 Materials 7 Labor 8 Overhead 9 Standard cost variances 0 Depreciation 1 2 Gross Profit 13 14 Cantle Prods 15 Sales 16 Cost of goods sold 17 Materials 18 Labor 19 Overhead 50 Standard cost variances 51 Depreciation 52 3 Gross Profit 54 55 56 3 50 3,740 1.140 S 1.781 1,043 662 (4) 68 3,550 1.241 70 3.648 1.284 $ $ $ 2.870 $ 2.781 $ 2.702 888 537 301 (2) 41 1.765 1.105 S 868 532 276 (3) 60 1.733 1.048 $ 840 SOS 270 2 58 1.675 1,027 $ E F G H 2016 S 2017 36 S 795 (70) 165 $ 674 (60) 2015 77 658 (60) 322 304 286 710 B BALANCE SHEETS (5000's) December 31 9 Cash 0 Accounts receivable 1 Allowance for Bad debt allowance Inventories: Raw materials (at cost) Finished goods: (at standard) OS Drones 66 Cattle Prods 67 Prepaid experises 68 Current assets 69 70 Building and equipment 71 Accumulated L depreciation 72 Total assets 73 74 Accounts payable 75 Taxes payable 76 Accrued interest 77 Warranty liability 78 Current portion of long-term delt Current liabilities 80 Long-term debt 81 Total liabilities Paid-it-capital 374 + 913 405 8 2.409 450 1.865 (895) 13.829 738 390 2 2.213 450 1.858 (790) 3.731 $ 2.049 458 1.831 (610) 3.720 S S 837S 16 675 14 694 13 11 10 10 40 19 40 100 993 1.300 2.293 550 100 839 1.400 2,239 350 100 858 1.500 2.358 350 Current assets Land Building and equipment Accumulated depreciation Total assets 2.409 450 1.865 (895) 3.829 2.213 450 1.858 (790) 3.731 $ 2.049 450 1.831 (610) 3.720 $ $ S 675 $ 837 $ 16 14 10 40 40 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt Current liabilities Long-term debt Total liabilities Paid-in-capital Retained earnings Total stockholders'equity Total liabilities and equity 100 993 1.300 2.293 550 1986 1.536 3.829 $ 839 1.400 2.239 550 694 13 11 40 100 858 1,500 2.358 550 812 1.362 3.720 942 $ 1.492 3.731 $ quired: 87 Required: 90 ) You are in the Planning phase of the audit. The engagement partner hins asked you to perform analytical procedures to identify potential risks and areas of audit focus in ABC Ine's 2017 financial statements Perfom the following analytical 88 procedures on the financial statements and identity issues that you believe require special attention in the 2017 audit. 89 Prepare a Horizontal (Trend Analysis of the Balance Sheet and Income Statement for 91 2017 compared to 2016. Show the change in dollars and the percentage change for each account. 92 Your midit planning materiality indicates that any variances rester than 10% year over 93 year should be further investigated. Identify the 94 potential audit implications for each balance to be investigated 952) Prepare Conuon Size Financial Statements (Vertical Analysis) for 2017 2016 und 2015 96 Identify fluctuations you believe should be investigated and 97 indicate the potential accounting and/or operating issues that 98 should be investigated 993) Compute the ratios included on the KPI Ratio Listing for 2017 and 2016 100 Determine if there are ratios that you should investigate and indicate the potential 101 causes of the ratio changes 1024 Using the information from Steps 1. 2. and 3. above, identify 4 findings and complete the Interim Audit Findings worksheet 103 and briefly state the primary audit procedure) you recommend 104 Peste cay JE Insert Delete Format E Merge Center - % ) 22 Conditional Format Cell Formatting Table Styles Sys Clear Sort find Filter Select Numb Editing D Unusual Account Fluctuation/Ratio Showdown in Ar Collections Potential Business Issue Overstatement of A/R Valuation Audit Procedure(s) to be Performed Inquire about collection issue, review calculation of AFDA B C D E G . 1 ABC, Inc. 2 Analytical Review Procedures 3 Year Ended December 31, 2017 It is January 2018 and you are staff accountant assigned to the 2017 nudit of ABC Inc. ABC is a closely held corporation managed by the founder and principal shareholder. Agatha Bernice Christy. Your firm has audited ABC for the last five years. The audited financial statements for the years ended December 31, 2016 and 2015 are presented below. with the 4 client's unaudited financial statements for 2017 5 Additional Information: ABC manufactures and sells drones for industrial use and cattle prods for ranching, 7 - All sales are on Credit Credit terms are net 30 days. 8 - ABC offers a one-year warranty covering manufacturing defects. ABC uses a periodic inventory system and determines its year-end inventory by taking a playsical count on December 31. You and your supervisor observed the count on December 31, 2017 and performed numerous test counts, but you have not performed further audit tests regarding inventory 10 The interest rate on all debt is 8 percent. Annual interest and principal payments are due cach December 1 11 - Average Common Shares Outstanding is 10,000 for each year. 12 INCOME STATEMENTS (S000's) 6 9 CULU - Average Common Shures Outstanding is 10,000 for each year. 2 INCOME STATEMENTS (5000's) 3 Years ended December 31 2017 2016 2015 Sales revenue s 7.750 $ 7.713 5 7.493 15 Cost of goods sold 5.505 5.381 5.225 16 Gross profit 2.245 2.332 2.268 17 Selling and general expenses 1.631 1.622 1.377 18 Depreciation experise 46 53 19 19 Warranty expense 75 63 20 90 85 90 21 Legal fees 53 14 12 22 Interest experts 110 127 135 23 Income before taxes 240 364 350 24 Income tax espere 71 109 104 25 Net income $ 169 $ 2355 246 26 Dividends paid $ 125 $ 1255 100 28 The following schedule shows the sales revenue and components of costs of goods sold for each of ABC'S 29 products Bad debt expense E F G H 2017 2016 2015 $ 4.880$ 4.932 $ 4.791 1.895 1.103 689 1,835 1.074 661 5 B D 1 SCHEDULES OF GROSS PROFIT (5000's) 2 Years ended December 31 3 Drones 4 Sales 5 Cost of goods sold 6 Materials 7 Labor 8 Overhead 9 Standard cost variances 0 Depreciation 1 2 Gross Profit 13 14 Cantle Prods 15 Sales 16 Cost of goods sold 17 Materials 18 Labor 19 Overhead 50 Standard cost variances 51 Depreciation 52 3 Gross Profit 54 55 56 3 50 3,740 1.140 S 1.781 1,043 662 (4) 68 3,550 1.241 70 3.648 1.284 $ $ $ 2.870 $ 2.781 $ 2.702 888 537 301 (2) 41 1.765 1.105 S 868 532 276 (3) 60 1.733 1.048 $ 840 SOS 270 2 58 1.675 1,027 $ E F G H 2016 S 2017 36 S 795 (70) 165 $ 674 (60) 2015 77 658 (60) 322 304 286 710 B BALANCE SHEETS (5000's) December 31 9 Cash 0 Accounts receivable 1 Allowance for Bad debt allowance Inventories: Raw materials (at cost) Finished goods: (at standard) OS Drones 66 Cattle Prods 67 Prepaid experises 68 Current assets 69 70 Building and equipment 71 Accumulated L depreciation 72 Total assets 73 74 Accounts payable 75 Taxes payable 76 Accrued interest 77 Warranty liability 78 Current portion of long-term delt Current liabilities 80 Long-term debt 81 Total liabilities Paid-it-capital 374 + 913 405 8 2.409 450 1.865 (895) 13.829 738 390 2 2.213 450 1.858 (790) 3.731 $ 2.049 458 1.831 (610) 3.720 S S 837S 16 675 14 694 13 11 10 10 40 19 40 100 993 1.300 2.293 550 100 839 1.400 2,239 350 100 858 1.500 2.358 350 Current assets Land Building and equipment Accumulated depreciation Total assets 2.409 450 1.865 (895) 3.829 2.213 450 1.858 (790) 3.731 $ 2.049 450 1.831 (610) 3.720 $ $ S 675 $ 837 $ 16 14 10 40 40 Accounts payable Taxes payable Accrued interest Warranty liability Current portion of long-term debt Current liabilities Long-term debt Total liabilities Paid-in-capital Retained earnings Total stockholders'equity Total liabilities and equity 100 993 1.300 2.293 550 1986 1.536 3.829 $ 839 1.400 2.239 550 694 13 11 40 100 858 1,500 2.358 550 812 1.362 3.720 942 $ 1.492 3.731 $ quired: 87 Required: 90 ) You are in the Planning phase of the audit. The engagement partner hins asked you to perform analytical procedures to identify potential risks and areas of audit focus in ABC Ine's 2017 financial statements Perfom the following analytical 88 procedures on the financial statements and identity issues that you believe require special attention in the 2017 audit. 89 Prepare a Horizontal (Trend Analysis of the Balance Sheet and Income Statement for 91 2017 compared to 2016. Show the change in dollars and the percentage change for each account. 92 Your midit planning materiality indicates that any variances rester than 10% year over 93 year should be further investigated. Identify the 94 potential audit implications for each balance to be investigated 952) Prepare Conuon Size Financial Statements (Vertical Analysis) for 2017 2016 und 2015 96 Identify fluctuations you believe should be investigated and 97 indicate the potential accounting and/or operating issues that 98 should be investigated 993) Compute the ratios included on the KPI Ratio Listing for 2017 and 2016 100 Determine if there are ratios that you should investigate and indicate the potential 101 causes of the ratio changes 1024 Using the information from Steps 1. 2. and 3. above, identify 4 findings and complete the Interim Audit Findings worksheet 103 and briefly state the primary audit procedure) you recommend 104 Peste cay JE Insert Delete Format E Merge Center - % ) 22 Conditional Format Cell Formatting Table Styles Sys Clear Sort find Filter Select Numb Editing D Unusual Account Fluctuation/Ratio Showdown in Ar Collections Potential Business Issue Overstatement of A/R Valuation Audit Procedure(s) to be Performed Inquire about collection issue, review calculation of AFDA