Question 3 Auditors have calculated some ratios and carried out trend analysis when performing audit of or of their client's financial statements. The following presents the information. PROBIO PHARMACEUTICAL RATIO ANALYSIS Ratios Current Ratio Quick Ratio Days' sales in receivables Days' sales in inventory Debt/equity ratio Times interest earned Sales growth over past year Current 2021 2020 2019 2018 Industry 1.85 1.89 2.28 2.51 0.85 0.93 1.32 1.76 109 96 100 152 165 92 4.85 4.88 1.3 1.45 5.89 6.3 3% 5% 2% 4% 72 69 1.25 1.13 2.13 1.4 69 84 1.25 4.5 6% Required: a) Draw major observation from the financial analysis shown in the table. Be specific
Question 3 Auditors have calculated some ratios and carried out trend analysis when performing audit of or of their client's financial statements. The following presents the information. PROBIO PHARMACEUTICAL RATIO ANALYSIS Ratios Current Ratio Quick Ratio Days' sales in receivables Days' sales in inventory Debt/equity ratio Times interest earned Sales growth over past year Current 2021 2020 2019 2018 Industry 1.85 1.89 2.28 2.51 0.85 0.93 1.32 1.76 109 96 100 152 165 92 4.85 4.88 1.3 1.45 5.89 6.3 3% 5% 2% 4% 72 69 1.25 1.13 2.13 1.4 69 84 1.25 4.5 6% Required: a) Draw major observation from the financial analysis shown in the table. Be specific
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
Transcribed Image Text:Question 3
Auditors have calculated some ratios and carried out trend analysis when performing audit of one
of their client's financial statements. The following presents the information.
PROBIO PHARMACEUTICAL RATIO ANALYSIS
Ratios
Current Ratio
Quick Ratio
Days' sales in receivables
Days' sales in inventory
Debt/equity ratio
Times interest earned
Sales growth over past year
Current
2021
(i)
(ii)
(iii)
(iv)
(v)
1.85
0.85 0.93
1.3
2020 2019 2018
1.89 2.28 2.51
109
152 165 92
4.85 4.88 1.25
3%
1.32
96 100
Observation / Accounts at risk
Present your answers in the following structure:
1.76
72
69
1.13
1.45 5.89 6.3
5% 2% 4%
Industry
2.13
Required:
a) Draw major observation from the financial analysis shown in the table. Be specific in
identifying specific account balances that have a high risk of material misstatement.
1.4
69
84
1.25
4.5
6%
b) State how your risk analysis in part (a) will be used in planning the audit.
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