Understanding the Client and Performing Analytical Procedures

Understanding The Client and Performing Analytical Procedures
Name ACC562- Advanced Auditing
Strayer UniversityInstructor Date
Analytical Procedures
Substantive procedures are a form of audit procedures used to detect material misstatements, including analytical procedures. These procedures are necessary to determine whether there are relationships between financial and non-financial data. Additionally, the procedures are useful to determine whether there are consistencies of the relevant information than expected.
The retail and wholesale industries that impact financial reporting
There is a need to prioritize reconciling and determining the possible cause of discrepancies in the retail and wholesale industries. Production inventory from various sources means that the company will pay different prices from different suppliers. There has been growth in the retail and wholesale industries, but there are fewer retail outlets. An efficient supply chain is important to ensure the inventory system's success, and deliveries are used. The internal control system's design effectiveness is one of the priority areas to control and reduce risk in the industries (McNally, 2013). In selling and administrative expenses, there is discounting, extended warranties, and customer loyalty programs.
Cloud 9's financial position and business risks
Analysis of the opening and closing balance trends helps to identify unusual fluctuations in the balances. There is the determination of the percentage changes in the value of recorded transactions from 1st January 2021 to 1st January 2022. The current portion of long-term debt is projected to decrease by 89.22% from $1,926,923 to $207,692 in 2022, the largest fall in balance sheet items for the years 2021 to 2022. The revenues increased from $345,965,385 to $364,953,846 but the gross profit margin still remained at 39% to 40%.
Different business risks will likely affect the company, both internal and external factors. There is a risk of cash and inventory misappropriation, including the risk of theft and fraud. Reducing the risk of fraud and access to data and information is important to detect unusual activities and patterns (Fambrough, 2019). The company requires an efficient IT inventory management system where there is an effective supply chain to meet the company's needs where there is the right quantity of inventory at the right time. Reliance on one or few suppliers can affect sales levels. There is increased pressure for the retailers to offer discounts and sell at low prices, which further squeezes the profit margins.
The gross profit, net profit, and pretax margins decrease slightly in 2022 compared to 2021. Similarly, return on equity (ROE) is 18.47 in 2021 and decreases to 16.8% in 2022, but the returns on assets increased from 9.89% to 10.13%. While there has been a slight change in the profitability and management effectiveness ratios, there is a need to improve the profitability levels.
The current ratio increased from 1.84 to 2.21. In contrast, the quick ratio increased from 1.16 to 1.41, and the two solvency ratios show that there has been an improvement in the company's ability to meet the short-term obligations. The efficiency/ asset management ratios reflect managing the assets efficiently to produce sales. The total asset turnover, inventory turnover, and receivables turnover are projected to increase and reflect increased efficiency. The days' sales outstanding (DSO) or average collection period decrease from 63.68 to 62.37 days, which shows that the average number of days to collect payment will decrease.
Ratio analysis
Name

2022

2021

Profitability



Gross margin

39.03%

39.93%

Net profit margin

6.21%

6.44%

Pretax margin

9.71%

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