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 possible evidence of RM [Risk of Misstatement].

1. 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.

4. Suggest one specific additional calculation that would also provide interesting ARP evidence.

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Transcribed Image Text:

ABC SPORTS Consolidated Statements of Comprehensive Income (In thousands, The 2015 data are unaudited) 2015 2014 2013 Net Sales $950,484 $857,885 $891,394 Cost of sales 546,393 472,739 490,530 Gross Profit $404,091 $385,146 $400,864 Selling, general and administrative expenses 364,012 334,994 353,890 Non-recurring charge (credit) (1,153) 8,190 Income from operations $40,079 $51,305 $38,784 Other income (expense): Interest expense (983) (1,229) (5,027) Interest income 1,459 573 10 Gain on sale of subsidiary Other (4,798) (4,322) (1,091) ($1,747) (1,593) Total other income (expense), net ($6,610) Income before income taxes 35,757 49,559 32,174 Income tax provision 13,230 18,337 11,905 Net income 22,527 $31,222 $20,269 ABC SPORTS Consolidated Statements of Comprehensive Income (In thousands, The 2015 data are unaudited) 2015 2014 2013 Net Sales $950,484 $857,885 $891,394 Cost of sales 546,393 472,739 490,530 Gross Profit $404,091 $385,146 $400,864 Selling, general and administrative expenses 364,012 334,994 353,890 Non-recurring charge (credit) (1,153) 8,190 Income from operations $40,079 $51,305 $38,784 Other income (expense): Interest expense (983) (1,229) (5,027) Interest income 1,459 573 10 Gain on sale of subsidiary Other (4,798) (4,322) (1,091) ($1,747) (1,593) Total other income (expense), net ($6,610) Income before income taxes 35,757 49,559 32,174 Income tax provision 13,230 18,337 11,905 Net income 22,527 $31,222 $20,269

Answer rating: 100% (QA)

1 Common Size Statement for ABC Sports 2015 2014 Trend 2015 vs 2014 2013 24 95048400 54639300 404091... View the full answer