Draw major conclusion regarding financial reporting risk from the information shown in the table . Be specific in identifying specific account balance that have high risk of material misstatement. State how tgat risk analysis will be used to in planning the audit. (Auditing)

Question 1 (24 marks) The following table contains calculations of several key ratios for a fictional company, Indianola Pharmaceutical Company, a maker of proprietary and prescription drugs. The company is publicly held and is considered a small to medium size pharmaceutical company. Approximately 80% of its sales have been in prescription drugs; the remaining 20% are in medical supplies normally found in a drugstore The primary purpose of the auditor's calculations is to identify potential risk areas for the upcoming audit. The auditor recognizes that some of the data might signal the need to gather other industry or company specific data. INDIANOLA PHARMACEUTICAL RATIO ANALYSIS Current 2017 2016 2015 2014 Indu Ratios Current Ratio Quick Ratio Times interest earned Days' sales in receivables Inventory turnover Days' sales in inventory R&D as a % of sales COGS as a % of sales Debt/equity ratio EPS Sales/Intangible assets Sales/Total assets Sales 2.13 85 1.89 2.28 2.5 0.85 0.93 1.32 1.76 3 1.45 5.89 6.3 09 96 100 72 2.4 2.21 3.96 5.31 52 165 92 69 3 1.4 1.94 2.03 8.5 40.2 41.2 43.8 85 4.88 1.25 1.13 1.12 $2.50 $4.32 $4.26 0.68 0.64 0.89 0.87 0.33 0.35 0.89 0.8 396| 5%| 296| 4% 4.5 69 4.33 84 .26 44.5 1.25 n/a 0.99 0.78 6% over past year Required: Draw major conclusions regarding financial reporting risk from the information shown in the table Be specific in identifying specific account balances that have a high risk of material misstatement State how that risk analysis will be used in planning the audit