Carinal Ltd. specializes in the development of electronic components within quite a competitive environment causing concerns for marketing and pricing. Its non-current assets primarily include IT software, property, and investments, and there have been additions to these during the year. As audit manager, you are conducting a preliminary analytical review and associated risk analysis for this client for the year ended June 30 2022. You have been presented with the following draft financial information about Carinal with incomplete ratios and percentages calculation. INCOME STATEMENT Year ended June 30 2022 2021 $'000 $'000 Revenue 22,450 18,675 Cost of Sales 8,475 8,055 Gross Profit 13,975 10,620 Distribution costs 4,245 3,120 Administrative expenses 1,276 2,134 Selling expenses 5,555 512 Profit from operations 2,899 4,854 Net interest receivable 1,245 495 Profit before tax 4,144 5,349 Income tax expenses 2,145 2,345 Net profit 1,999 3,004 Retained profits 1,325 2,105 Dividends paid 1,250 1,049 ACCOUNTING RATIOS AND PERCENTAGES Earnings per share 0.54 1.25 Performance ratios include the following: Gross Margin (Gross profit/revenue) ? ? Expenses as a percentage of revenue: Distribution costs ? ? Administrative expenses ? ? Selling expenses ? ? Operating profit as a percentage of revenue ? ? Answer the following questions below with references to back your answers 1. Using the information above, complete the calculation of accounting ratios and percentages and comment briefly on the performance of the company for the two years. 2. By reference to question number 1, identify ten areas that are subject to increased audit risk and describe the further audit work you would perform in response to those risks.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Carinal Ltd. specializes in the development of electronic components within quite a competitive environment causing concerns for marketing and pricing. Its non-current assets primarily include IT software, property, and investments, and there have been additions to these during the year.

As audit manager, you are conducting a preliminary analytical review and associated risk analysis for this client for the year ended June 30 2022. You have been presented with the following draft financial information about Carinal with incomplete ratios and percentages calculation.

INCOME STATEMENT

Year ended June 30

	2022	2021
	$'000	$'000
Revenue	22,450	18,675
Cost of Sales	8,475	8,055
Gross Profit	13,975	10,620
Distribution costs	4,245	3,120
Administrative expenses	1,276	2,134
Selling expenses	5,555	512
Profit from operations	2,899	4,854
Net interest receivable	1,245	495
Profit before tax	4,144	5,349
Income tax expenses	2,145	2,345
Net profit	1,999	3,004
Retained profits	1,325	2,105
Dividends paid	1,250	1,049

ACCOUNTING RATIOS AND PERCENTAGES

Earnings per share	0.54	1.25
Performance ratios include the following:
Gross Margin (Gross profit/revenue)	?	?
Expenses as a percentage of revenue:
Distribution costs	?	?
Administrative expenses	?	?
Selling expenses	?	?
Operating profit as a percentage of revenue	?	?

Answer the following questions below with references to back your answers

1. Using the information above, complete the calculation of accounting ratios and percentages and comment briefly on the performance of the company for the two years.
2. By reference to question number 1, identify ten areas that are subject to increased audit risk and describe the further audit work you would perform in response to those risks.

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