Posted: August 28th, 2016

What specific audit objectives are likely to be misstated?

The following information was taken from the accounting records for Aurora Manufacturting, Inc.:
YEAR 5 YEAR 4 YEAR 3 YEAR 2 YEAR 1
UNAUDITED AUDITED AUDITED AUDITED AUDITED
Inventory
$525,000
$ 460,000
$ 390,000
$310,000
$ 225,000
Current Assets $1,350,000 $1,175,000 $950,000 $750,000 $ 600,000
Accounts Payable $115,000 $113,000 $ 97,500 $ 850,000 $ 70,000
Current Liabilities $ 545,000 $535,000 $ 440,000 $ 380,000 $320,000
Sales $2,700,000 $ 2,050,000 $1,750,000 $ t400,000 $ uoo,ooo
Cost of Goods Sold $1,650,000 $ 1)25,000 $1,025,000 $ 850,000 $ 725,000
Industry Median
Accounts Payable
Turn Days 31 30 29 30
Cost of Goods Sold to
Accounts Payable 10.7 11.2 10.9 11.1
Current Asset to
Current Liabilities 1.9 2.2 2.3 2.1
a. Calculate the following information and ratios for years 2, 3, 4, and 5:
Purchases
Accounts payable turn days
Cost of goods sold to accounts payable
Current ratio
b. Describe the implications of the resulting ratios for the auditor’s audit strategy.
What specific audit objectives are likely to be misstated? How should the
respond in terms of potential audit tests?