Audit Chapter 8

1314 Words6 Pages
When analyzing the Pinnacle Manufacturing Financial Statements there multiple concerns that should be further investigated that I will explain in this memo. When identifying the year to year change and using financial ratios found on A6, there are a couple of concerns that need to be identified. The fact that the operating expense from fluctuated from an increase $892,861 from 2009 to 2010 and then decreased by $956,231 from 2010 to 2011 should be raised in question. At the same time Operating expenses income from operations decreased from 2009-2010 by $1,260,571 and increased from 2010-2011 by $78,541. The -23.10% from 2009-2010 is concerning in their ability realized from profit on their business operation. On the balance sheet there…show more content…
As discussed above this can just be further investigated with the legal department for clarification of what occurred during that year. Another concern for Solar –Electro division is their miscellaneous expense. There should just be a further explanation of how they get an increase of $191,910 from 2010 to 2011. Finally for Solar – Electro the operating income brings up concern on their steady decrease, and their continuing to report operating loss. Machine-Tech (A9) is doing the best out of each division profit wise. There are not too many concerns for this division.

I think that the information from all divisions is helpful because we can see the variance as a whole and how future predictions can affect the company and identifying any concerns. When comparing both the "all divisions" and each of the "individual division", they are both useful for evaluating data for potential misstatements. Using both helps understanding the variance or potential misstatements in "all divisions" and identifying which division is causing the concern and further research will be done with in the individual division. (A7-A10)

The account receivable turnover ratio (A6) measures how efficiently a company uses it assets. In this case Pinnacle has a declining turnover ratio that indicates that Pinnacle should re-evaluate its credit policies to ensure timely receivable collection. Looking at the
Get Access