Analyze the Balance Sheet and Income Statement for ABC Company. Come up with 6 q
ID: 2532989 • Letter: A
Question
Analyze the Balance Sheet and Income Statement for ABC Company. Come up with 6 questions for the client that you would like to dig deeper into based on the change from 2016 to 2017. For each of the 6 questions, list audit steps you would take to check for material misstatements and would you allow you to eventually sign off on the audit report.
Capitalization threshold = $5,000 +
Balance Sheet 12/31/2017 and 12/31/2016 Assets Liabilities 12/31/2017 12/31/2016 12/31/2017 12/31/2016 Current Assets Current Liabilities Cash 60,000 100,000 Notes payable 2,500 4,000 Petty Cash 5,000 1,000 Accounts payable 50,000 80,000 Accounts Receivable - net 40,000 65,000 Wages payable 35,000 42,000 Inventory 10,000 12,000 Interest payable 3,000 3,200 Supplies 3,000 2,500 Taxes payable 500 1,000 Prepaid Insurance 12,000 4,500 Unearned revenues 1,500 1,300 Total current assets 130,000 185,000 Total current liabilities 92,500 131,500 Property, plant and equipment Long-term liabilities Land 30,000 30,000 Notes payable 12,000 22,000 Land improvements 4,500 4,000 Bonds payable 75,000 100,000 Buildings 65,000 65,000 Total long-term liabilities 87,000 122,000 Equipment 26,000 8,000 Less: accumulated deprec (25,000) (20,000) Total liabilities 179,500 253,500 Prop, plant, and equip-net 100,500 87,000 Intangible assets Stockholders' Equity Goodwill 15,000 15,000 Common Stock 5,000 5,000 Trade names 10,000 3,000 Retained Earnings 74,000 34,500 Total intangible assets 25,000 18,000 Total Stockholders' equity 79,000 39,500 Other assets 3,000 3,000 Total assets 258,500 293,000 Total liabilities and stockholders' equity 258,500 293,000Explanation / Answer
Audit questions to ask ABC companies Management for analysis -
1. Nature of company and various types of revenue it is generating. List of various locations it is operating from.
2.Any merger/acquisition/sale /disposal of investment / unit/subsidiary.
3.Crediors and debtors ageing for year 2016 and 2017 to check creditability and liquidity position of company.
4. Any specific reason for increase in net income ratio by 10% as compared to previous yera - 2016.
5.Resons for Increase in office supplies expenses by 200% during year 2017 as compared to 2016. Further Bifurcation of Office supplies expenses to understand nature.
6.Goodwill valuation method followed by company. Any impariement done to goodwill balance.
7.Any leasehold agreement endered by Company or assets given on lease to check lease accounting.
Audit steps to check material misstatement :
I would allow to signoff the audit report once all procedure relating to audit and confirmations and analysis is done and which gives us assurance that there is not material misstatement.