Auditing

Basic ARPs for ABC Sports: Trend Analysis Advanced Module 1 (pp. 151 - 160) discusses several ARP approaches including 'trend analyses'. Assume you are a staff member of an audit firm which is auditing 2015 unaudited financials. You are asked to use trend analysis in the planning stage to identify 2015 accounts with 1. [Calculations). Prepare a common size income statement for ABC Sports which adds to the attached spreadsheet, columns for common size percentages. Also add percentage differences and dollar differences for 2015 vs 2014. These differences provide audit evidence of 'trend' [year to year changes). 2. [Judgment] Highlight the two most audit-interesting percentage and dollar differences (trends] 3. (Analytical reasoning) Explain why they are interesting to the auditor [to you) including describing the audit risk that concerns you including saying whether you are concerned with overstatement or understatement in the accounts you have highlighted. 2015 $950,484 546,393 $404,091 364,012 2014 $857,885 472,739 $385,146 334,994 (1,153) $51,305 2013 $891,394 490,530 $400,864 353,890 8,190 $38,784 $40,079 Net Sales Cost of sales Gross Profit Selling, general and administrative expenses Non-recurring charge (credit) Income from operations Other income (expense): Interest expense Interest income Gain on sale of subsidiary Other Total other income (expense), net Income before income taxes Income tax provision Net income (983) 1,459 (1,229) 573 (5,027) 10 (4,798) (4,322) 35,757 13,230 22,527 (1,091) ($1,747) 49,559 18,337 $31,222 (1,593) ($6,610) 32,174 11,905 $20,269