5-39 Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
5-39 Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.87 0.91 1.08 Days of inventory on hand 62.73 75.15 82.40 84.02 80.52 82.26 79.89 86.86 84.13 75.04 Inventory/current assets 53.48% 45.51% 48.42% 62.28% 80.81% Return on assets 16.10% Debt to equity 0.02 9.75% 0.07 5.70% 1.47 2.16% 2.36 6.05% 0.72 58.04% 6.98% 0.44 8.87% 0.31 56.44% 60.19% 60.92% 7.05% 5.06% 50.33% 11.73% 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may need to use Internet searches to obtain more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry. 5-39 Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2021. As with all audit engagements, Arthur's initial procedures are to analyze the entity's financial data by reviewing trends in significant ratios and comparing the company's performance with the industry so that he better understands the business and can determine where to concentrate his audit efforts. As part of Arthur's audit of The Home Improvement Store, he performed analytical procedures by calculating the following ratios and obtaining related industry data. The Home Improvement Store Industry 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Quick ratio 0.67 0.73 1.38 0.45 0.29 0.79 0.81 0.87 0.91 1.08 Days of inventory on hand 62.73 75.15 82.40 84.02 80.52 82.26 79.89 86.86 84.13 75.04 Inventory/current assets 53.48% 45.51% 48.42% 62.28% 80.81% Return on assets 16.10% Debt to equity 0.02 9.75% 0.07 5.70% 1.47 2.16% 2.36 6.05% 0.72 58.04% 6.98% 0.44 8.87% 0.31 56.44% 60.19% 60.92% 7.05% 5.06% 50.33% 11.73% 0.56 0.53 0.57 Required: Compare The Home Improvement Store's ratios with those of its industry. You may need to use Internet searches to obtain more information regarding the ratios used in the analytical procedure. For each ratio provided in the table above a. Indicate the potential risks the ratio and/or historical patterns may present. b. Indicate one or two plausible explanations for why The Home Improvement Store's ratios or historical patterns differ from those of the industry.
Expert Answer:
Related Book For
Auditing and Assurance Services A Systematic Approach
ISBN: 978-0077732509
10th edition
Authors: William Messier Jr, Steven Glover, Douglas Prawitt
Posted Date:
Students also viewed these accounting questions
-
Ling Li of Li Windows, Inc. is considering making a change in the material the firm uses for panes in its residential window line. The new material has a slight mirror attribute that assists in...
-
Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2014. As with all audit engagements, Arthurs initial procedures are to analyze the entitys financial data by reviewing trends in...
-
Find each limit in Problems 3760. Note that LHpitals rule does not apply to every problem, and some problems will require more than one application of LHpitals rule. lim x 3 x + 3xx - 3 X x + 6x + 9
-
Computer Service and Repair was started five years ago by two college roommates. The company's comparative balance sheets and income statement are presented below, along with additional information....
-
What is the wavelength of a neutron traveling at a speed of 4.54 km/s?
-
What is the plain-meaning rule?
-
Sue Helms Appliances wants to establish an assembly line to manufacture its new product, the Micro Popcorn Popper. The goal is to produce five poppers per hour. The tasks, task times, and immediate...
-
The Operations Manager of Toshiba's laptop manufacturing plant is about to prepare her annual report to the Board of Directors. Using the table below, she outlined the performance of the plant based...
-
5. What would be the anticipated market share for Choco Bliss ( twinkies)? (5 marks) 6. How would you penetrate the market of Choco Bliss ( twinkies)? (5 marks) 7. What will be the benchmark of...
-
When is it justifiable to use trade tariffs and trade quotas as a substitute for domestic environmental policy?
-
Describe the key drivers that will either increase or decrease the costs of climate policy around the globe.
-
Explain the pros and cons of using rational choice theory to help think about how to manage risks to human and environmental health.
-
What are the main differences between stated- and revealed-preference methods of environmental valuation?
-
Why are the predictions of the prisoner's dilemma so important to natural resource management?
-
Calculate the 2nd moment of inertia for a beam with a length of 200 mm, a width of 20 mm and a height of 3 mm. For the same beam, and using the provided equations, calculate the maximum deflection if...
-
Planning: Creating an Audience Profile; Collaboration: Team Projects. Compare the Facebook pages of three companies in the same industry. Analyze the content on all available tabs. What can you...
-
You are the audit manager for Ken-Ron Enterprises. Your firm has been the entity's auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calculate overall...
-
While it is a relatively rare event, companies do change auditors. Use the Internet to identify an auditor change? Pick one auditor change and investigate the information provided by management and...
-
The following client-prepared bank reconciliation is being examined by Zachary Kallick, CPA, during the examination of the financial statements of Simmons Company. Required: Items (a) through (e)...
-
What is the adverse selection problem?
-
Automobile insurance companies charge lower rates to married individuals than they do to unmarried individuals. What economic reason is there for such a practice? Is it fair?
-
An advanced degree is required to teach at most colleges. In what sense is this a form of restricting entry through licensure?
Study smarter with the SolutionInn App