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Ratio Current Yr Prior Yr Ind. Ave. Liquidity Current Ratio 2.89 2.64 1.98 Quick Ratio 0.67 0.50 0.48 Asset Management Ave. Collection Period 38.38 26.99

Ratio Current Yr Prior Yr Ind. Ave.
Liquidity
Current Ratio 2.89 2.64 1.98
Quick Ratio 0.67 0.50 0.48
Asset Management
Ave. Collection Period 38.38 26.99 17.99
Days Sales in Inventory 209.56 187.01 184.02
Profitability
Gross Profit Margin 42.10% 41.56% 38.03%
Net Profit Margin 6.29% 7.55% 5.00%
Return on Equity 13.22% 17.25% 13.02%
Solvency
Times Interest Earned 4.97 5.98 5.11
Debt to Assets 0.40 0.40 0.38
Debt to Equity 0.67 0.67 0.57

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Information from Predecessor Auditor, Wilks and Company

The previous auditor replied that they were comfortable working with the staff and management of GPC. The people have integrity, and are open to recommendations.

They expressed admiration for Hanss business instincts and GPCs distribution channels. Hans is nearing retirement, and though the children are equally dedicated to the business, they do not have his skills.

Wilks and Company will allow Wallace and Brace, CPA to review their audit working papers.

Instructions:

After reading the document entitled Green Pastures Cheese, LLC: Background and completing ratios in the preliminary analytical procedures Excel workbook, respond to each question with complete sentences and reasoning to support your answer. Cite sources.

Review the ratios which you completed in the preliminary analytical procedures Excel workbook. Identify ratios and trends that cause concern about the clients ability to continue as a going concern or indicated a high likelihood that the client will continue as a going concern. Use the data to support your conclusion.

Review the horizontal analysis in the preliminary analytical procedures Excel workbook. Identify balance sheet accounts that you believe are most likely to be misstated, and explain why the fluctuation (or lack thereof) is significant.

The client explained that the decrease in General and Administrative expenses was mostly caused by a decrease in bad debt expense due to improved collection efforts. Does this seem likely given your analysis? What accounts could potentially be misstated? What audit procedures could be done to test the clients assertions?

The client explained that increase in the Sales and the Commissions/Bonuses Expense are related. They noted a strong increase in year-end sales which resulted in higher sales commissions and bonuses. What accounts could potentially be misstated? What audit procedures could be done to test the clients assertions?

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