Ratio analysis involves the comparison of relationships between financial statement accounts, a comparison of an account...

 

 

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Ratio analysis involves the comparison of relationships between financial statement accounts, a comparison of an account with nonfinancial data, or a comparison of relationships across an industry, such as gross profit comparisons. These types of comparisons are useful in the planning stage of the audit. Use Exhibit 2 for the following questions. Question 5 Start with "All Stores": use the prior year gross profit percentage calculated in Exhibit 2 as your estimate and compare it to the current year gross profit percentage. Calculate both the change in percentages and the percent change in percentages. Determine and document your conclusion on the likelihood of a material misstatement in sales revenue (low, moderate, or high) being sure to include appropriate numbers in your discussion. Note- subtracting two percentages gives you a "change in percentages"; it does not give you the percent change in percentages. To calculate the percent change, you must divide the change in percentages by the prior year percentage. (2 points) Question 6 Because gasoline is sold at a different mark-up than other types of products, we might expect stores that sell gasoline to have a different gross profit percentage than stores that do not sell gasoline. Therefore, using the additional data in Exhibit 2 and appropriate calculations you perform, conclude on which stores might be more at risk of having materially misstated sales revenue being sure to include appropriate numbers in your discussion. Use 10% as a reasonable tolerable misstatement for this test. (2 points) Exhibit 2 On the Go Stores Gross Profit Percentage - Only Continuing Stores Current Year Prior Year All Stores Total Sales $31,564,264 $30,618,742 COGS 21,463,700 21,987,932 Gross Profit $10,100,564 $8,630,810 Gross Profit % 31.99% 28.19% Current Year Prior Year Sells Gasoline Total Sales $23,905,477 $23,329,838 COGS 16,112,291 16,307,557 Gross Profit $7,793,186 $7,022,281 Gross Profit % 32.60% 30.10% Current Year Prior Year Doesn't Sell Gasoline Total Sales $7,658,787 $7,288,904 COGS 5,351,409 5,680,375 Gross Profit $2,307,378 $1,608,529 Gross Profit % 30.10% 22.10% Ratio analysis involves the comparison of relationships between financial statement accounts, a comparison of an account with nonfinancial data, or a comparison of relationships across an industry, such as gross profit comparisons. These types of comparisons are useful in the planning stage of the audit. Use Exhibit 2 for the following questions. Question 5 Start with "All Stores": use the prior year gross profit percentage calculated in Exhibit 2 as your estimate and compare it to the current year gross profit percentage. Calculate both the change in percentages and the percent change in percentages. Determine and document your conclusion on the likelihood of a material misstatement in sales revenue (low, moderate, or high) being sure to include appropriate numbers in your discussion. Note- subtracting two percentages gives you a "change in percentages"; it does not give you the percent change in percentages. To calculate the percent change, you must divide the change in percentages by the prior year percentage. (2 points) Question 6 Because gasoline is sold at a different mark-up than other types of products, we might expect stores that sell gasoline to have a different gross profit percentage than stores that do not sell gasoline. Therefore, using the additional data in Exhibit 2 and appropriate calculations you perform, conclude on which stores might be more at risk of having materially misstated sales revenue being sure to include appropriate numbers in your discussion. Use 10% as a reasonable tolerable misstatement for this test. (2 points) Exhibit 2 On the Go Stores Gross Profit Percentage - Only Continuing Stores Current Year Prior Year All Stores Total Sales $31,564,264 $30,618,742 COGS 21,463,700 21,987,932 Gross Profit $10,100,564 $8,630,810 Gross Profit % 31.99% 28.19% Current Year Prior Year Sells Gasoline Total Sales $23,905,477 $23,329,838 COGS 16,112,291 16,307,557 Gross Profit $7,793,186 $7,022,281 Gross Profit % 32.60% 30.10% Current Year Prior Year Doesn't Sell Gasoline Total Sales $7,658,787 $7,288,904 COGS 5,351,409 5,680,375 Gross Profit $2,307,378 $1,608,529 Gross Profit % 30.10% 22.10%