Accounting Ratios & Percentages Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: 0-43 1-04 0-80 0-78 Distribution Costs 0-20 0-15 0-13 Administrative Expenses Selling Expenses Operating Profit 0-07 0-20 0-02 0-34 0-48 Required: - a) Using the information given in the question identify THREE high risk areas for the audit and explain why they are high risk areas. b) For each high risk area identified, describe one audit procedure you would perform in response to those risks.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Accounting Ratios & Percentages
Earnings per Share
Performance Ratios including the following:
Gross Margin
Expenses as a percentage of revenue:
0-43
1.04
0-80
0-78
Distribution Costs
0-20
0-15
Administrative Expenses
Selling Expenses
Operating Profit
0-07
0-13
0-20
0-02
0-34
0-48
Required: -
a) Using the information given in the question identify THREE high risk areas for the audit
and explain why they are high risk areas.
b) For each high risk area identified, describe one audit procedure you would perform in
response to those risks.
Transcribed Image Text:Accounting Ratios & Percentages Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: 0-43 1.04 0-80 0-78 Distribution Costs 0-20 0-15 Administrative Expenses Selling Expenses Operating Profit 0-07 0-13 0-20 0-02 0-34 0-48 Required: - a) Using the information given in the question identify THREE high risk areas for the audit and explain why they are high risk areas. b) For each high risk area identified, describe one audit procedure you would perform in response to those risks.
You have been presented with the following draft financial information about Efren Bata Reyes
Ltd, a very successful company that develops and licenses specialist computer software and
hardware. Its non-current assets mainly consist of property, computer hardware and investments,
and there have been additions to these during the year. The company is experiencing increasing
competition from rival companies, most of which specialize in hardware or software, but not both.
There is pressure to advertise and to cut prices. You are the audit manager. You are planning the
audit and are conducting a preliminary analytical review and associated risk analysis for this client
for the year ended 31 July 2021. You have been provided with a summarized draft income
statement which has been produced very quickly and certain accounting ratios and percentages.
You have been informed that the company accounts for research and development costs in
accordance with IAS 38 Intangible Assets.
INCOME STATEMENT
Year ended 31 July, 2021
S'000
Year ended 31 July 2020
S'000
Revenue
15,206
3,009
13,524
3,007
Cost of Sales
Gross Profit
12,197
10,517
Distribution Costs
3,006
1,996
Administrative Expenses
Selling expenses
Profit from Operations
994
1,768
3,002
274
5,195
6,479
Net Interest Revenue
995
395
Profit Before Tax
6,190
6,874
Income Tax Expense
3,104
1,452
Net Profit
3,086
1,469
5,422
Dividends Paid
1,439
Retained Profits
1,617
3,983
Transcribed Image Text:You have been presented with the following draft financial information about Efren Bata Reyes Ltd, a very successful company that develops and licenses specialist computer software and hardware. Its non-current assets mainly consist of property, computer hardware and investments, and there have been additions to these during the year. The company is experiencing increasing competition from rival companies, most of which specialize in hardware or software, but not both. There is pressure to advertise and to cut prices. You are the audit manager. You are planning the audit and are conducting a preliminary analytical review and associated risk analysis for this client for the year ended 31 July 2021. You have been provided with a summarized draft income statement which has been produced very quickly and certain accounting ratios and percentages. You have been informed that the company accounts for research and development costs in accordance with IAS 38 Intangible Assets. INCOME STATEMENT Year ended 31 July, 2021 S'000 Year ended 31 July 2020 S'000 Revenue 15,206 3,009 13,524 3,007 Cost of Sales Gross Profit 12,197 10,517 Distribution Costs 3,006 1,996 Administrative Expenses Selling expenses Profit from Operations 994 1,768 3,002 274 5,195 6,479 Net Interest Revenue 995 395 Profit Before Tax 6,190 6,874 Income Tax Expense 3,104 1,452 Net Profit 3,086 1,469 5,422 Dividends Paid 1,439 Retained Profits 1,617 3,983
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