Posted: May 4th, 2016

Describe the implications of the resulting ratios for the auditor’s audit strategy for year 20×9?

(Analytical procedures) The following data was taken from the production and account­ing records for Casuccio Manufacturing, Inc.

From the book, Modern Auditing 8th Edition, Part 4: Auditing the Transaction Cycles. Chapter 15: The Expenditure Cycle (Pages 729-730) Q15-23 and Chapter 14: The Revenue Cycle (Page 675) Q14-26.

Operating Data
Capacity in Units

450,000

450,000

450,000
Production in Units 450,000 400,000 300,000
Inventory in Units 32,000 28,000 21,000
Financial Data ($000)
Total Revenues $ 35,200 $27,500 $21,200
Total Assets $23,000 $ 19,500 $15,700
Accounts Receivable, Net $5,900 $4,300 $3,900
Bad Debt Expense $175 $135 $105
Accounts Receivable Written Off $165 $125 $100

Required

1. Calculate the following ratios for 20×9, 20×8 and 20×7:
a. Sales to total assets b. Sales to production
c. Revenue per unit sold
d. Accounts receivable growth to sales growth
e. Uncollectable accounts expense to net credit sales
f. Uncollectable accounts expense to accounts receivable written off g. Accounts receivable turn days
2. a. Describe the implications of the resulting ratios for the auditor’s audit strategy for year 20×9.
b. What specific audit objectives are likely to be misstated?
c. How should the auditor respond in terms of potential audit tests?

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