Part B - ReportBackgroundCurtainsMaster is a large proprietary company established in North Queensland in the 1990s, selling a wide range of high-quality fabric curtains for household decoration. The company purchases products from manufactures in Vietnam, Bangladesh, and China, and then sells its products to wholesales customers in Australia, Germany, and the United States. The company also places its products on consignment in various small retail storesin Queensland. Sales mainly peak from the second half of the financial year, generating an average of 60% of revenue for the whole year. In past years the company has performed well, with its profit rate at around 12% and an average increase in annual revenues of 5%.In the last two years, the company has extended its marketing from Germany to other countries in Europe. As a result of this, in the budget for the year 2019-2020, the company while aiming to maintain its profit rate, plans to increase its revenues by 8%. The company uses USD to pay its suppliers and EUR or USD or AUD in its dealings with customers.While the business is expanding in Europe, sales in Australia and US are struggling to reachtheir targets. These markets are quite competitive, providing more affordable products with a large range of designs and choices. Further, in recent years, countries like Vietnam and China have become more eco-conscious, attempting to reduce their industrial impact on the environment. As such, textile manufacturing has been discouraged with strict regulations. Some of CurtainsMaster's suppliers have reduced their production capacity and haveexperienced an increase in production costs. Managing inventory on consignment has been an issue for CurtainsMaster in the past 12 months. On several occasions, the company lost track of their inventory movements and status at the various retail premises. To support the business expansion and strengthen internal controls for inventory, in January 2020 the company installed a new inventory management system on the cloud, which allows inventory movements to be followed up, from production to end-users. The system will also help to follow up and calculate inventory ageing from the day the inventory was entered into the system. In the past five years, old and work-in-progress inventory has piled up due to new designs, orders cancelled by customers, or specification problems. When the new system was implemented these stock items, together with others, were entered into the system as the beginning balance for theinventorv.Since January 2020, CurtainsMaster has also experienced significant impact due to the COVID-19 pandemic. Approximately 50% of customer orders due to be delivered in May, June and July have been cancelled. Payments from customers have been delayed as they have also been impacted by the situation. Since the middle of February the company's sales at small retail stores have decreased dramatically, by approximately 70%. From the middleof March, 60% of staff (both casual and full-time) were made redundant. For the last three months of the current financial year, the company is expecting to have no sales but still pay another 10% of the current total expenses. To minimise the impact of a tight cashflow, in February, when the financial market was peak, the company sold all its financial investments and generated some extra cash for the business before the market dived in March.However, things can get worse; there is much uncertainty and no clear indication of when the pandemic will end.

Financial Information: 2. Analytical Procedures Actual the first 9 month Budget Actual Actual As part of the risk assessment phase, you conducted analytical procedures and the results 31-Mar 30-Jun are as below: Account 2020 2019-2020 30-Jun 2019 2018 Sales Revenue 62,749,877 137,000,000 126,885,497 120,156,721 Interim Budget Actual Actual Growth 50.5% 8.0% 5.6% 5.9% 30-Jun 30-Jun 30-Jun FX Gain/Loss 12,320 -150,000 11,230 120,301 Account 2019-2020 2020 2019 2018 (% on Total Revenue) -1.4% -0.1% 0.0% 0.1% Other Revenue 10,561,423 600,000 888,198 712,356 Total revenue 100% 100% 100% 100% (% on Total Revenue) 14.6% 0.4% 0.7% 0.6% COS 55% 54% 56% 58% Total revenue 72,298,980 137,450,000 127,762,466 120,989,378 Salaries expenses 28% 15% 14% 13% COS 36,394,929 3,980,000 1,055,879 59,690,898 Salaries expenses 18,145,600 20,420,000 18,301,680 6,023,508 Administration expenses 14% 8% 7% 6% Administration expenses 9,450,120 10,960,000 8,881,985 7,209,403 Selling expenses 8% 5% 4% 4% Selling expenses 5,019,990 6,850,000 5,075,420 4,806,269 Borrowing Costs 5% 2% 2% 2% Borrowing Costs 3,430,468 2,800,000 3,086,096 2,945,001 Total expenses 72,441,106 115,010,000 106,401,058 100,675,079 Profit before income tax -142,126 22,440,000 21,361,407 20,314,299 (% on Total Revenue) -0.2% 16.3% 16.7% 16.8% Income Tax expense 5,610,000 5,553,966 5,078,575 Actual Actual (% on Sales Revenue) 0.0% 4.4% Interim 4.1% 4.2% Budget Ratios Profit after income tax 142,126 16,830,000 15,807,442 15,235,724 30-Jun 30-Jun 2020 2019-2020 30-Jun % on Total Revenue) -0.2% 12.2% 12.4% 12.6% 2019 2018 Growth -100.9% 6.5% 3.8% Liquidity ratios Current ratio 1.4 2.0 2.3 Current assets Quick ratio 0.3 0.9 1.0 1.3 4.3 4.9 Cash 5,420,140 8,041,120 7,050,100 Inventory turnover Accounts receivable 2.6 6.5 68 Accounts Receivable 7,000,500 5,145,100 4,689,456 Solvency ratios Inventory 11,145,100 4,225,001 4,000,450 Debt to equity 1.4 0.9 0.8 Total current assets 23,565,740 17,411,221 15,740,006 Times interest earned -1.0 7.0 6.1 6.2 Non-current assets Profitability ratios Property, plant and equipment 9,450,000 12,950,400 12,400,550 Gross profit ratio 0.362 0.46 0.44 0.42 Intangible assets 2,040,120 2,400,410 2,514,500 Net profit ratio 0.102 0.12 0.12 0.13 Total non-current assets 11,490,120 15,350,810 14,915,050 ROA -0.054 0.12 0.13 Total assets 35,055,860 32,762,031 30,655,056 Return on Sh funds 0.116 0.23 0.23 Current Liabilities Using the above analysis and financial information given, Accounts Payable 10,780,125 5,615,610 4,561,780 1. discuss the results of the analytical procedures by outlining four (4) potential problem Interest Bearing Liabilities 6,250,000 3,250,000 2,250,000 areas (that is, where possible material misstatements in the financial reports exist) and Total current liabilities 17,030,125 8,865,610 6,811,780 any other special concerns (for example, going concern). 2. Specify the account balances and related assertions that would require particular Non-current liabilities attention in the audit. Deferred tax liabilities 405,12 650,041 756,100 3. For each problem identified, you must use the above quantitative analysis to support Interest-bearing liabilities 3,000,000 6,000,000 6,000,000 your argument. Total non-current liabilities 3,405,126 6,650,041 6,756,100 Please use the following table to present your answers: Total liabilities 20,435,251 15,515,651 13,567,880 Accounts Assertions Equity 14,620,609 17,246,380 17,087,176 Potential risk - type of risk, description