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BACKGROUND KNOWLEDGE:-
2. ANALYTICAL PROCEDURES:-
Gross Profit : Net Sales
2009 2008
= 36.8 % = 37.6%
Decrease = 0.8%
2009 2008
Decrease = 3.46 %
2009 2008
= 9.4 % = 8.7 %
Increase = 0.7 %
2009 2008
= 5.1 % = 2.9 %
Increase = 2.2 %
= 117,403,328
= 101,797,613
2009 2008
= 36.4 % = 17.7 %
Increase = 18.7 %
= 722,930,583.5
2009 2008
= 12.6 % = 13.6 %
Decrease = 1 %
= 63,088,632
2009 2008
= 13.2 % = 9.62 %
Increase = 2.6 %
= 78,591,026
2009 2008
= 10.6 % = 7.72 %
2009 2008
79,538,353 / 110,804,515 64,612,207 / 84,559,470
= 71.1 % = 76.6 %
Decrease = 5 %
2009 2008
= 24.9 % = 27.05 %
Decrease = 2.15 %
= 38.09 % increases
2. COSST OF SALES
= 39.8 % increases
3. GROSS PROFIT
= 35.1 %
4. DISTRIBUTION COST
= 19.2 % increases
5. ADMINISTRATIVE EXPENSES
= 49 % increases
6. OTHER INCOME
87120 / 381
= 228.6
= 136.7 % increases
= 100.4 % Increases
From the analysis, it is evident that Sales have increased by 38.09% and so does
the Cost of sales has been increased by 39.8% due to which a 35% increase in
Gross profit has been reported which is a reasonable profit for the year. But here
comes a question that when all the expenses are increasing, Net profits must go
down but they are increasing then what will be the reason for it? As we can see
that there was a loss in Other income in 2008 that shows that instead of income,
expenses were incurred. But, in 2009, Other income was incurred so we can say
that Net profits have incurred due to this reason.
o Loop hole in upper management can be seen as the posts of CEO and
chairperson are acquired by the same person.
o Low quality of work done by internal auditor due to improper qualification
that’s why we have to do extensive testing
o We have seen that assets have increased for 2009 but in the distribution
costs, depreciation has increased which must have increased according to
the situation. This highlights the area of Property, plant and equipment that
the depreciation might be calculated wrongly.
o The increase in the net profits along with the increase in sales, costs of
sales and gross profit indicates that there may be some manipulation done
in distribution and administrative costs.
o Overall risk level as indicated by analytical procedures is moderate.
o By looking into the notes to the accounts, it is also noted that within the
expenses, there is a noticeable increase in salaries, entertainment and
stipend which does not seem justified and these areas are to be focused.
4. MATERIALITY LEVEL:-
As our risk level is moderate, materiality level wll also be moderate. In our audit,
it will be considered that an error or omisiion of less than 5% of profit before tax
is not material, while an error of more than 10% of profit before tax is material.
Materiality of amount in intermediate range depends on specific
circumstances.0.5% of total revenues or assets will be immaterial while 1.5% of
total revenues or assets will be considered material.
5. AUDIT APPROACH:-
Reliance on the internal audit report can’t be done because of the incompetancy
of internal auditor so extensive testing is to be done specially for inventory,
Property plant and equipment and distributive and administrative costs. Other
areas to be focused include purchases, wages and salaries, entertainment
expenses and stipends given to the internees.
We will carry out some additional testing on the work done in change over period
where there are greatest chances of errors occurring.
We will also attend the annual inventory count on June 20, 2009.
REVIEW
Our review ensures involvement of higher levels of management with the audit process and
provides an assurance that the work has been carried out as per the standards and guidelines.
Review of work would be carried out at each stage of audit cycle as under:
by the audit managers on concurrent basis when the team members conclude a particular stage
in the field work;
by the senior audit functionaries at the time of preparation of audit observations and draft audit
reports; and
by the top management while evaluating draft audit reports and quality checks before approval of
the headI.