Audit & Assurance

1042 Words5 Pages
Part 1
The purpose of Part 1 is to perform preliminary analytical procedures. You have been asked to focus your attention on two purposes of analytical procedures:
Assess going concern and
Indicate where there is an increased likelihood of misstatements

Required for Part 1
Calculate at least ten ratios that are useful to assess going concern using Heritage’s financial statements, which are located on Blackboard, appendix 1 & 2. Document the ratios in a format similar to the following:
Ratios 2009 2008 2007 Current assets 44,497
Current ratio: Current liab. 25,926 1.72 Debt to equity Net income before tax/sales Gross margin % Inventory turnover Interest to debt Gearing (10 Marks)
Explain
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You conclude the turnover is only present at the higher-level positions.

While reviewing Heritage’s long-term debt agreements, you identify several restrictive covenants. Two requirements are to keep the current ratio above 2.00 and debt-to-equity below 1.00 at all time.

While reading the footnotes of the previous years financial statements, you not that one customer, Auto-Electric, accounts for nearly 15% of the company’s accounts receivable balance. You investigate this receivable and learn it has been outstanding for several months.

The engagement partner from your ACCA firm called today notifying you that Brain Sioux, an industry specialist and senior tax manager from the firm’s Ontario office, will be coming on site to Heritage’s facilities to investigate an ongoing dispute between the Internal Revenue service and Heritage.

A member of your ACCA firm, who is currently on site in Detroit at Welburn division, calls you to see how everything is going while you are visiting Solar-Electro in Texas. During your conversation, he asks if you know anything about the recent inter-company loan from Welburn to Solar-Electro.

During discussions with the Heritage controller, you learn that Heritage employees did a significant amount of construction work for a building addition. The controller stated that the work was
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