Need help with Auditing, please. Please explain it briefly and the important details of this case as an auditor.

1. Explain the different types of ratio analysis that auditors could conduct in substantive analytical procedures to test the validity of managements explanations.

2. How would these substantive analytics be different from the planning analytics?

3. Discuss the trends and relationships that are relevant, and what are the implications concerning further substantive testing?

4. How an auditor should report the audit implications of the findings, indicating any additional procedures that should be performed.

Please help to understand what should auditors consider in the Auditor Report from the below-provided situations (please explain briefly what needs to be pointed out in the report):

• Following many years of dominant financial performance by companies in the United States, Europe, and Canada, increased competition is arising from organizations in emerging economies such as Brazil, India, and China.
• Significant uncertainty exists in the industry due to regulations covering healthcare and government reimbursements related to certain procedures and prescribed pharmaceuticals.
• Policymakers in the industry and governments increasingly:
  • Mandate necessary prescripts for patients
  • Focus on prevention instead of treatment regimes, thereby leading to changes in demand for some products
• Anticipated growth in the industry is expected to be 5% to 7% in 2016 compared with 4% to 5% in the prior year as stated by leading industry analysts.
• Pharmacorp started and executed a significant cost reduction initiative aimed at improving efficiency, reducing research and development costs, and eliminating corporate overhead in 2014.
• PharmaCorps credit policies have remained the same over the past several years. Their credit policies are considered stringent in their industry, and they have been criticized on occasion for these policies in relation to their competitors.
• Two of the company's most popular pharmaceuticals, Sistosis and Vigarvox, are no longer patented as of the last quarter of 2015 and are now facing competition from generic alternatives.

Information specific to the Acquisition and Payment Cycle

• Raw materials inventory required in the businesses are purchased from numerous suppliers. No serious shortages or delays of raw materials inventory were encountered in 2015, and none are expected in 2016. PharmaCorp has successfully secured the raw materials inventory necessary to meet its requirements where there have been short-term imbalances between supply and demand, but generally at higher prices than those historically paid.
• A risk that companies in this industry face with respect to the acquisition and payment cycle is that there is a possibility of failing to maintain the integrity of supply chains, possibly resulting in intentional and criminal acts such as product diversion, product theft, and counterfeit raw materials inventory.
• In response to pricing pressure, several major suppliers changed their policy with respect to discounts for early payment of amounts due on credit sales. In response, PharmaCorp changed its policy of paying within two weeks to paying within four weeks since it is no longer monetarily beneficial to do so from a cash management perspective.

Part II: Substantive Analytical Procedures

Management has explained the decline in the cost of goods sold as involving:

• Lower purchase accounting charges, primarily reflecting fair value adjustments relating to acquired inventory that was subsequently sold
• Lower costs related to new cost reduction and productivity initiatives, as well as savings generated from ongoing productivity initiatives to streamline the supply chain network
• Reduced manufacturing volumes related to products that lost exclusivity in various markets
• The impact of favorable foreign exchange rates of 3%.