Part 1 (20 marks) The term "analytical procedures" means the evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Required: Identify and explain the most important reasons for performing analytical procedures. Part 2 (60 marks) You are the audit senior on the audit of Easyfit Pty Ltd, a large manufacturer of shoes, whose main market lies in the 18-24 age groups. This is the first year your audit firm has performed the audit. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and lasts year's audited financial information. The results are given below: Industry Average Easyfit Pty Ltd _________________________________________________ Ratio 2010 2009 2010 2009 1. Current ratio 2.84 3.27 1.89 2.24 2. Accounts Receivables turnover 4.9 4.6 6.3 7.0 3. Inventory turnover ratio 3.7 3.8 5.0 5.5 4. Return on assets 7% 5% 13% 11% 5. Profit margin 0.06 0.06 0.04 0.04 6. Gross profit per cent 20% 26% 20% 18% Required: Based on the information given: (i) explain the general meaning of each of the above ratios; (ii) discuss the conclusions that you can draw about Easyfit Pty Ltd's financial position; and (iii) identify potential audit risks to be investigated further Your answer must bepresented in a three-column format as follows: What the ratio means Conclusions to draw Potential risks to be investigated Part 3 (20 marks) ASA 500 mentions that the auditor should obtain sufficient appropriate audit evidence. Required: Explain what is meant by sufficient appropriate audit evidence. Discuss what you understand by reliability of audit evidence and how the reliability of audit evidence may be influenced. Note: Make sure that you keep a copy of the submitted assignment, should you be required to produce it in the unforeseen event. Part 1 (20 marks) The term "analytical procedures" means the evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Required: Identify and explain the most important reasons for performing analytical procedures. Part 2 (60 marks) You are the audit senior on the audit of Easyfit Pty Ltd, a large manufacturer of shoes, whose main market lies in the 18-24 age groups. This is the first year your audit firm has performed the audit. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and lasts year's audited financial information. The results are given below: Industry Average Easyfit Pty Ltd _________________________________________________ Ratio 2010 2009 2010 2009 1. Current ratio 2.84 3.27 1.89 2.24 2. Accounts Receivables turnover 4.9 4.6 6.3 7.0 3. Inventory turnover ratio 3.7 3.8 5.0 5.5 4. Return on assets 7% 5% 13% 11% 5. Profit margin 0.06 0.06 0.04 0.04 6. Gross profit per cent 20% 26% 20% 18% Required: Based on the information given: (i) explain the general meaning of each of the above ratios; (ii) discuss the conclusions that you can draw about Easyfit Pty Ltd's financial position; and (iii) identify potential audit risks to be investigated further Your answer must bepresented in a three-column format as follows: What the ratio means Conclusions to draw Potential risks to be investigated Part 3 (20 marks) ASA 500 mentions that the auditor should obtain sufficient appropriate audit evidence. Required: Explain what is meant by sufficient appropriate audit evidence. Discuss what you understand by reliability of audit evidence and how the reliability of audit evidence may be influenced. Note: Make sure that you keep a copy of the submitted assignment, should you be required to produce it in the unforeseen event.