Planning Flashcards Preview

AA > Planning > Flashcards

Flashcards in Planning Deck (13)
Loading flashcards...
0

AP Gross profit margin

Gross profit / Revenue

1

AP Inventory days

Inventory / CoS x 365

2

AP Trade receivables days

TR / Revenue x 365

3

Trade payables days

TP / purchases x 365

4

Questions for management:

Reasons for:
- % increase in revenue
- increase in gross profit margin
- increase in receivables days
- increase in payables days
- decrease in PPE
- decrease in cash

5

Increase in Revenue

- increased volume / new product
- Inflation / pricing policy
- New customers and contract terms
- Any change in income recognition policy

6

Increase in gross Profit Margin

- whether cut-off has been properly applied
- changes in selling price / suppliers price
- Inflated sales / unrecorded purchases
- increase in sales of higher margin items
- overstatement of closing inventory

7

Increase in receivables days

- Changes in trading / credit terms
- Unrecoverable debts
- large credit sale just before year end - further analysis required

8

Increase in payables days

- New suppliers' credit terms
- Whether all liabilities are included / appropriate cut-off (decrease)
- Whether all suppliers are demanding early payment (decrease)

9

Decrease in cash and cash equivalents

- Working capital forecasts - possible over trading

10

Increase in PPE

- what assets have been purchased

11

Benefits of analytical procedures

Planning stage:
- Assist in understanding if the business
- Identify areas of potential risk
- Plan nature, timing and extent of other audit procedures.

Audit testing:
- Can be more effective and efficient
- Provide corroborative evidence

Completion stage:
- Identify unexpected variances

12

Limitations of analytical procedures

- Auditor needs a good understanding if the business to interpret results.
- Consistency of results may conceal a material error which may not be identified.
- Need to be carried out by experienced members of staff.
- Rely on good quality and reliable information being available from the client.