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You are an audit manager at Hogan & Associates and have been assigned to the audit of Looking Good Lid (LGL) for the year ending
You are an audit manager at Hogan & Associates and have been assigned to the audit of Looking Good Lid (LGL) for the year ending 30 June 2015. LGL is an Australian manufacturer, wholesaler and retailer of ladies handbags and shoes. LGL manufactures all its products at its Brisbane factory and sells via retail outlets throughout Australia. LGL is listed on the Australian Securities Exchange and Hogan & Associates has been its auditor for several years. In recent years, LGL has been finding it difficult to meet its projected profit forecasts due to increased competition from new local competitors, imported products and online shopping; the increasingly high Australian dollar; and the impact of the global and European financial crisis on consumer spending. During the planning stage of the audit you become aware of the following matters: 1. LGL has significant loans from its bank. The bank has indicated that it is concerned about LGL's ability to meet specific loan covenants, particularly the return on total assets (net profit total assets). 2. The aged trade accounts receivable listing indicates that the percentage of accounts receivable exceeding 90 days has jumped from 15 per cent to 37.5 per cent during the last 12 months. The credit manager has indicated that this is because some of LGL's customers are currently experiencing financial difficulty
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