Question
Required Task 1.1 Josh Thomas, Audit Senior, has asked you to research the retail and wholesale footwear industries and report back to the audit team.
Required
Task 1.1
Josh Thomas, Audit Senior, has asked you to research the retail and wholesale footwear industries and report back to the audit team. Your report will form part of the overall understanding of Cloud 9's structure and its environment.
You should concentrate your research on providing findings from those areas that have a financial reporting impact and are considered probable given Cloud 9's operations. In conducting your research, you should consider the following key market forces, as they relate to Cloud 9's operations.
General and Industry-specific economic trends and conditions
a. What is the current condition of the economy?
b. Is the business affected by developments in other countries, foreign currency fluctuations or other global forces?
c. If the industry is labour intensive, are there unusual or unique labour relations issues?
d. How does the company's growth and overall financial performance compare with the industry, and what are the reasons for any significant differences?
e. What is the volume and type of transactions in the business?
f. Are the client's operations centralised or decentralised?
g. Is the client's business cyclical in nature or influenced by seasonal fluctuations in the market?
h. What is the susceptibility to fraud/theft? (Is the product something that can easily be stolen and has a sale market?)
Competitive environment
a. What products does the client sell, and have there been significant changes with respect to:
- Major products or brands?
- Selling strategies?
- Sales/gross margin by product?
j. Who are the client's major competitors, and what share of the market does each hold?
k. Is there significant differentiation between the client's and competitors' merchandise?
l. What is the effect on the client of potential new entrants into the market? Are there any significant barriers to entering the market?
Product information
m. Is there a specific lifecycle for the product?
n. Is the product dependent on trends or styles?
Customer information
o. Are there specific customers on whom the client is highly dependent?
p. What is the overall profile of the client's customers? Have there been significant fluctuations in the client's customer base?
Supplier information
q. Who are the key suppliers?
r. Are the materials subject to significant price movements or influenced by external market forces?
Technological advances and the effect of the internet
s. How does the industry use technology?
t. What technological trends are impacting the industry?
Laws and regulatory requirements.
u. Are the client's operations affected significantly by local or foreign legislation?
What new laws and regulations recently enacted (or pending) may have significant effects on the company?
December 31, 2019
STATEMENT OF INCOME
For the year ended December 31, 2019
20192018
Revenue 51,057,288 48,171,417
Cost of goods sold 24,590,09124,567,422
Gross profit 26,467,19723,603,995
Other expenses 24,416,968 21,810,612
Income from operations2,050,2291,793,383
Other income 468,671 404,234
Income before taxes 2,518,9002,197,617
Income tax expense 567,111 678,096
Net income 1,951,789 1,519,521
STATEMENT OF FINANCIAL POSITION
December 31, 20192019-2018
ASSETS Current Assets Cash 1,819,142 588,431
A/R -------------12,665,924 -----10,569,617
Inventory 7,395,890 7,816,539
Prepaids 799,265 1,362,500
Total Current Asset-22,680,22120,337,087
Due from parent578,767578,767
Plant and equipment1,023,558 888,039
Total Assets 24,282,546-21,803,893
LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities
Accounts payable-1,458,2635,224,982
Accrued liabilities 3,373,3961,533,650
Total Current Liabilitie- 4,831,6596,758,632
Long-term debt11,472,2699,072,298
Deferred taxes 204,340 150,474
Total Liabilities 16,508,26815,981,404
Equity
Share capital6,265,232-6,265,232
Retained earning deficit-1,509,046 --(442,743)
total24,282,546 - 21,803,893
Cloud 9 Ltd. December 31, 2020 Identification of significant risks
Potential risk description | Account(s) | Assertion(s) (assignment 3) | Level of inherent risk (assignment 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started