Inherent Risk, Tests of Controls, and Substantive Procedures

Overview

In this assignment, you will prepare a 23 page professional document that addresses the requirements specified in the case. Fully address each requirement and include at least two current references to scholarly and/or authoritative sources.

Instructions

Specifically you will be required to:

1. Calculate the required ratios for all given years.
2. Identify and explain high inherent risk assertions.
3. Analyze and draw conclusions about the nature and extent of tests of controls.
4. Analyze and draw conclusions about the nature, timing, and extent of substantive procedures.
5. Use at least two current, quality academic or authoritative sources in this assignment. Note: Wikipedia and similar websites do not qualify as quality scholarly and/or authoritative sources. Use the Strayer University Library to conduct your research.

This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course.

The specific course learning outcome associated with this assignment is:

• Develop conclusions about risks, control tests, and substantive procedures for a given client using analysis and calculations.

	Year 5 Unaudited	Year 4 Audited	Year 3 Audited	Year 2 Audited	Year 1 Audited
Inventory	$ 525,000	$ 460,000	$ 390,000	$ 310,000	$ 225,000
Current assets	1,350,000	1,175,000	950,000	750,000	600,000
Accounts payable	115,000	113,000	97,500	85,000	70,000
Current liabilities	545,000	535,000	440,000	380,000	320,000
Sales	2,700,000	2,050,000	1,750,000	1,400,000	1,200,000
Cost of goods sold	1,650,000	1,225,000	1,025,000	850,000	725,000
Industry Median
Accounts payable turnover days	31	30	29	30
Cost of goods sold to average accounts payable	10.7	11.2	10.9	11.1
Current ratio	1.9	2.2	2.3	2.1