You are an audit senior in the firm of Big Apple accountants. You are seeking promotion to
Question:
You are an audit senior in the firm of Big Apple accountants. You are seeking promotion to audit supervisor and want to impress the audit partner by assisting in the latest risk assessment for a long-standing client who uses a periodic inventory system. You have obtained the following information from the client’s accounts:
Current Year Last Year
Sales $2,400 $1,800
Less: Expenses
Cost of goods sold 1,008 990
Salaries 288 216
Repairs and maintenance 444 198
Other expenses 360 180
Net profit 300 216
Using common-size analysis, identify accounts that may be at risk of material misstatement giving details of the potential reasons.