Accounting Ratios & PercentagesEarnings per SharePerformance Ratios including the following:Gross MarginExpenses as a percentage of revenue:0-431.040-800-78Distribution Costs0-200-15Administrative ExpensesSelling ExpensesOperating Profit0-070-130-200-020-340-48Required: -a) Using the information given in the question identify THREE high risk areas for the auditand explain why they are high risk areas.b) For each high risk area identified, describe one audit procedure you would perform inresponse to those risks. You have been presented with the following draft financial information about Efren Bata ReyesLtd, a very successful company that develops and licenses specialist computer software andhardware. Its non-current assets mainly consist of property, computer hardware and investments,and there have been additions to these during the year. The company is experiencing increasingcompetition from rival companies, most of which specialize in hardware or software, but not both.There is pressure to advertise and to cut prices. You are the audit manager. You are planning theaudit and are conducting a preliminary analytical review and associated risk analysis for this clientfor the year ended 31 July 2021. You have been provided with a summarized draft incomestatement which has been produced very quickly and certain accounting ratios and percentages.You have been informed that the company accounts for research and development costs inaccordance with IAS 38 Intangible Assets.INCOME STATEMENTYear ended 31 July, 2021S'000Year ended 31 July 2020S'000Revenue15,2063,00913,5243,007Cost of SalesGross Profit12,19710,517Distribution Costs3,0061,996Administrative ExpensesSelling expensesProfit from Operations9941,7683,0022745,1956,479Net Interest Revenue995395Profit Before Tax6,1906,874Income Tax Expense3,1041,452Net Profit3,0861,4695,422Dividends Paid1,439Retained Profits1,6173,983

Audit procedures are steps taken by auditors to obtain all relevant information about the accuracy…

Accounting Ratios & Percentages Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: 0-43 1-04 0-80 0-78 Distribution Costs 0-20 0-15 0-13 Administrative Expenses Selling Expenses Operating Profit 0-07 0-20 0-02 0-34 0-48 Required: - a) Using the information given in the question identify THREE high risk areas for the audit and explain why they are high risk areas. b) For each high risk area identified, describe one audit procedure you would perform in response to those risks.

Accounting Ratios & Percentages Earnings per Share Performance Ratios including the following: Gross Margin Expenses as a percentage of revenue: 0-43 1-04 0-80 0-78 Distribution Costs 0-20 0-15 0-13 Administrative Expenses Selling Expenses Operating Profit 0-07 0-20 0-02 0-34 0-48 Required: - a) Using the information given in the question identify THREE high risk areas for the audit and explain why they are high risk areas. b) For each high risk area identified, describe one audit procedure you would perform in response to those risks.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter3: Analysis Of Financial Statements

Section: Chapter Questions

Problem 1bM

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