Wayne is also planning the 30 June audit of Francis Ltd, a company that runs a chain of home wares retail stores in regional New South Wales and Victoria. Using the company's financials as well as his understanding of Francis under ASA315, he has compiled the following preliminary information:

Ratio

2021

2020

2019

2018

Current Ratio

2.44

1.97

2.18

2.11

Quick Ratio

0.84

1.17

1.58

1.53

Times interest earned

2.18

2.78

3.57

4.61

Receivables Turnover

3.65

4.79

3.57

4.70

Days in receivables

75.60

57.97

77.45

58.80

Inventory turnover

1.57

1.60

2.33

2.91

Days in inventory

176.41

172.58

121.10

95.07

Net Sales/Tangible Assets

0.52

0.56

0.64

0.60

Profit Margin

0.09

0.11

0.14

0.13

Return on Assets

0.07

0.08

0.10

0.09

Return on Equity

0.03

0.05

0.09

0.09

Francis import all their products, primarily from China, Europe and North America. Some items are sourced from Africa and South America. The company operates in a low gross margin environment, which typically means that large sale volumes are required to cover overhead costs and generate profits. It also means that overheads need to be kept under control to ensure that a net profit results from its operations. Francis did not reach industry benchmarks for profitability in 2020, so to do better in 2021, management planned to keepcosts down in relation to sales while allowing its gross margin to drop, evidently planning to generate a larger volume of sales. The company also planned to improve its working capital management by reducing levels of inventory and accounts receivable. It budgeted for a drop in debt levels, indicating that it expected to produce a healthy cash flow to enable it to do so.

RegardingFrancis Ltd,based on the ratios and other information provided:

• The conclusions that can be drawn about the potential of Bowden to continue as a going concern.
• Three (3) account balances that could be at risk of material misstatement and would require special attention during the audit. You should provide Wayne with a justification as to why these three (3) accounts are at risk and a statement as to whether they are likely to be overstated or understated.
• For each of the three (3) account balances identified above, two (2) key assertions that are at risk and an explanation as to why they are at risk.