Griffith AFE 3102AFE Your firm has been Approached by a Listed Company

Griffith AFE 3102AFE Your firm has been Approached by a Listed Company in $11 Only (Instant Download)Griffith AFE 3102AFE Your firm has been Approached by a Listed Company

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Assignment XLS1015.docx ASSIGNMENT Your firm has been approached by a listed company, POFO Limited, and asked if you will accept appointment as auditors for the year ending 31 December 2015 (it is now late November 2015).

POFO Ltd’s Finance Director provided you with the following statement of financial position and income statement information which included actual figures for years ending 31 December 2012 to 2014, with estimated figures for 2015. POFO Ltd produces gadgets. This was once a fairly profitable industry but both the size and profitability of the industry in Australia have declined significantly in recent years due to advanced technology and replacement products (which POFO Ltd is unable to produce with its existing plant and equipment). Over recent years a number of its competitors and customers have closed down and existing tariffs, quotas and import duties on imported gadgets have been scheduled to be abolished at the beginning of 2015. POFO Ltd’s factory closed in late November, pending the resolution of an industrial dispute (factory workers demanding a 15% wage rise and reduced hours). It is unlikely that work will resume prior to the Christmas shutdown and consequently the estimated figures for 2015 are not, in the opinion of the Finance Director, expected to change.

ZORO LIMITED INCOME STATEMENT

2012 $’000  2013 $’000 2014 $’000 2015 $’000 112,500 90,000 2,000 750 2,400 115,875 98,494 2,000 750 2,000 108,923 98,031 2,000 750 1,800 92,584 86,103 2,000 750 1,500 1,850 1,850 1,850 1,850 15,500 10,781 4,492 381 Tax expense 6,045 4,204 1,752 149 NPAT 9,455 6,577 2,740 232 Revenue COGS Depreciation Amortisation Interest – Expense (net) Other expenses NPBT ZORO LIMITED BALANCE SHEET AS AT 2012 $’000 2013 $’000 2014 $’000 2015 $’000 Current assets Cash Receivables Inventories Other 630 21,171 19,784 517 500 24,347 22,752 517 450 27,999 26,164 517 150 33,598 31,397 517 Total Current Assets 42,102 48,116 55,130 65,662 Non-Current assets Investments Property, plant & equipment Intangibles Other 87 25,921 15,349 1,115 87 23,977 14,582 1,115 87 22,179 13,852 1,115 87 20,515 13,160 1,115 Total Non Current Assets 42,472 39,761 37,233 34,877 Total assets 84,574 87,877 92,363 100,539 Current liabilities Creditors Borrowings Provisions 9,267 5,000 11,772 10,657 0 12,361 12,256 2,500 12,978 14,707 4,000 13,627 26,039 23,018 27,734 32,334 1,338 5,000 1,531 1,137 5,000 1,479 94 3,000 1,552 1,360 5,000 1,630 7,869 7,616 4,646 7,990 33,908 30,631 32,380 40,324 Non-current liabilities Creditors Borrowings Provisions Total liabilities Net assets 50,666 57,243 59,983 60,215 Shareholders, equity Share capital Reserves Retained profits 26,202 11,187 13,277 26,202 11,187 19,854 26,202 11,187 22,594 26,202 11,187 22,826 Total shareholders, equity 50,666 57,243 59,983 60,215

Required:

(a) The responsible partner for accepting new clients has requested you to prepare a preliminary analytical review on the information provided by POFO Ltd’s Finance Director. The partner suggests that as a minimum you should provide him with the following information.

(1) Horizontal analysis for 2015 and 2014. For asset’s items use the net assets as base figure and for items in the income statement use the net profit before tax as the base figure. Use the findings to suggest to him the audit risk areas bearing in mind the assertions. (5 marks)

(2) Calculate 2 liquidity ratios, 2 activity ratios, 4 profitability ratios and 2 solvency ratios over the period 2011 to 2015.

Use Excel to answer both sections of part

(a). Produce a working sheet showing the formula that you have used to calculate the ratios on Excel. (8 marks + 2 marks for presentation)

(b) List four areas of high inherent risk based on your findings in (a) above and explain how they could affect the financial statements of 2015. (5 marks)

Sample Answer:

Part b)

Inherent risk, in a financial audit, measures the auditor’s assessment of the likelihood that there are material misstatements due to error or fraud in segment before considering the effectiveness of internal control. Inherent risk is the risk posed by an error or omission in a financial statement due to a factor other than a failure of control……

Following two files are available with the answer:

  1. Answer for Griffith AFE 3102AFE Your firm has been Approached by a Listed Company.docx
  2. Answer for Griffith AFE 3102AFE Your firm has been Approached by a Listed Company.xlsx

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